We all know that Warren Buffett’s favourite holding position is forever. However, finding stocks that are able to prosper through multiple business cycles and economic downturns isn’t an easy task. Yet following a recent pull-back, I took the opportunity to buy into a FTSE 100 blue-chip stock that I believe has incredible long-term growth potential.

A powerful business model

Legal & General (LSE: LGEN) is primarily known for its insurance and retail retirement expertise. Indeed, it is the UK’s number one individual life insurance provider.

However, its business tentacles stretch far and wide. Its institutional retirement division takes on pension scheme liabilities from corporate schemes. Doing so helps companies de-risk their liabilities while providing guaranteed payments to individuals within their schemes.

Its investment management division has assets under management of £1.4trn and has deep expertise in defined contribution (DC) and defined benefit (DB) pension schemes.

Finally, its investment capital division invests across a number of specialist asset classes. This includes commercial real estate, clean energy, housing and SME finance. And L&G is a top-10 house builder by revenue.

Growth drivers

The sheer diversity of L&Gs business model is a significant selling point for me. It is in a unique position to capitalise on a number of long-term growth drivers. Many of these drivers provide a significant degree of immunity in a low-growth economic environment.

Ageing demographics is a trend that continues to accelerate across many western economies. Pension risk transfer (PRT) is a huge and growing market. In the UK alone, it is estimated that only 13% of £2.4trn of DB pension liabilities have been transferred to insurance companies such as L&G. The rising interest rate is a likely catalyst for companies to consider accelerating the de-risking of their pension plans.

Pension freedoms and welfare reforms add up to another huge driver for future growth. Over the past few years there has been an increasing awareness of the need to take personal responsibility for financial security, particularly in later life.

Climate change and technological innovation are key drivers too. For example, L&G has invested in over 500 start-ups to date.

Is Legal & General undervalued?

L&G’s recently-released half-year results convinced me that the market is undervaluing its long-term prospects.

In the last 10 years, the company has seen its earnings per share (EPS) and dividend per share grow by a compound annual growth rate of 11%.

EPS for the first six months of 2022 was higher than the company achieved in the whole of 2015. Today however, the share price sits at the same level as back then.

The business is confident that it will consistently grow cash and capital faster than its dividend commitment. This excess cash provides it with tremendous flexibility. It could, for example, decide to return excess cash to shareholders or reinvest for future growth.

Insurance is a risky business. Rising inflation coupled with low global growth is likely to hit L&G’s bottom line. Should inflation become entrenched and policy responses by central banks prove ineffective, a significant economic downturn is likely to follow.

Despite these risks, I feel that long-term structural changes across society are trends that L&G is well positioned to capitalise upon. That is why, in the last few weeks, I added to my position.

The post A FTSE 100 stock that I never intend to sell appeared first on The Twelfth Magpie.

More reading

• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• Here’s why I bought this 7.6%-yielding FTSE 100 dividend stock instead of saving in a Cash ISA
• How much would you need in a Stocks and Shares ISA to match the State Pension?
• Here’s a quick and easy way to start earning passive income this summer with a spare £1,000
• How much would I need to invest in these FTSE 100 dividend gems for a £29,061 ISA passive income?

Andrew Mackie has positions in Legal & General Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Rising inflation is causing global turmoil, dampening investor confidence, and increasing market volatility. With inflation spiking to 9.1% in the UK for May, the highest rate for 40 years, the FTSE 100 is down over 4% year-to-date. In the US, the S&P 500 has taken a massive 20% hit. With rising rates seeing the value of stagnant cash depreciating, I’m on the lookout for high-yield income stocks to help me hedge inflation. Here’s two I’d buy today.

Rio Tinto

My first pick would be Rio Tinto (LSE: RIO). It is the second-largest metals and mining company in the world, specialising in base metals. Year-to-date, the stock is up nearly 2%.

Rio Tinto currently offers a meaty dividend yield of 11.5%, beating the UK inflation rate and protecting against the potential for my stagnant cash to erode. What I also like about the stock is its low valuation. With a current price-to-earnings ratio (P/E) of just 4.7, this looks cheap. Comparing it to competitor Glencore, which has a current P/E of 15, highlights further the value Rio Tinto provides.

The stock may also provide a stable investment at this moment in time, as inflation tends to see commodity producers benefit. The conflict between Russia and Ukraine has also seen the supply of steel become scarcer all over Europe. This could benefit Rio Tinto as it mines iron ore, a key component of steel. Shorter supplies may see prices driven up, in turn boosting Rio Tinto’s revenues.

However, the business faces threats from within China through ongoing lockdown measures. As these continue, demand from the world’s largest steel producer may decline. That said, this is a short-term concern, and in the long run I think Rio Tinto is a solid buy.

Legal & General

My second pick is Legal & General (LSE: LGEN). The business is a financial and insurance services provider, with a focus on the UK market. 2022 has seen the stock fall by 21%.

With a current dividend yield of 7.4%, this is slightly below the UK inflation rate. However, the business has plans to increase its annual dividends in the years ahead. While dividend payments are not guaranteed of course, buying at the current price could allow me to see greater yields than the current 7.4% in future times.

I also like Legal & General due to its solid foundations. It’s an iconic brand with a solid reputation. And this provides a good platform for future growth. In 2021 the firm posted profits after tax of just over £2bn, up 28% from the year prior. With a market capitalisation of just below £15bn, this also means the company trades on a low P/E ratio of 7.3. Furthermore, its basic earnings per share last year were 34.2p, easily covering the current dividend rate of 18.5p per share.

However, there are risks. The threat of recession may deter customers from regular investments. And in prior financial crises, the business has reduced dividends. However, from a long-term perspective, I’d happily add Legal & General to my portfolio today.

The post 2 income stocks I’d buy to protect against inflation! appeared first on The Twelfth Magpie.

More reading

• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• Here’s why I bought this 7.6%-yielding FTSE 100 dividend stock instead of saving in a Cash ISA
• How much would you need in a Stocks and Shares ISA to match the State Pension?
• Here’s a quick and easy way to start earning passive income this summer with a spare £1,000
• How much would I need to invest in these FTSE 100 dividend gems for a £29,061 ISA passive income?

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

That said, it pays to be selective when investing for dividends as you don’t want to be hit with a cut. With that in mind, here’s a look at three FTSE 100 dividend stocks I like right now.

Mondi

Mondi (LSE: MNDI) is an international packaging and paper group that operates in more than 30 countries across the world. The company is fully integrated across the packaging and paper value chain and has a strong focus on sustainable packaging solutions, which is important in today’s environmentally-aware world.

Mondi shares have considerable dividend appeal, to my mind. Not only is the yield attractive at 3.7%, but cover is strong at around 2.3 times, which indicates there’s little chance of a dividend cut in the near term.

Additionally, the company has lifted its dividend payout significantly over the last five years and looks set to continue hiking the payout in the years ahead, with analysts forecasting growth of 5% this year and 4% next year.

Packaging companies like Mondi are a little out of favour with the market right now due to global growth concerns, and I think that’s created an opportunity for dividend investors. Trading on a P/E of just 10.7, Mondi shares are priced to buy, in my view.

BAE Systems

Next up, BAE Systems (LSE: BA), a multinational defence and security company that helps to protect national security and keep critical information and infrastructure secure. With geopolitical uncertainty across the world remaining elevated, the company appears well placed to benefit.

BAE Systems shares have pulled back significantly over the last year over the uncertainty surrounding its relationship with Saudi Arabia, and this has pushed the yield up to an attractive 4.6%. I think that level of yield is hard to ignore as dividend coverage is strong at nearly two times.

The company also has a fantastic dividend growth track record, having notched up 15 consecutive dividend increases now. With the stock trading on a P/E of 10.6, I think it’s a good time to be accumulating BAE for its yield.

Legal & General Group

Finally, I continue to see considerable income appeal in Legal & General (LSE: LGEN) shares. The dividend yield here is a high 5.9% – nearly four times what you could pick up from a high-interest savings account.

With high yielding stocks, you need to be a little careful as this can signal the market believes a dividend cut is on the horizon. Yet with LGEN shares, I don’t think investors need to be worried. For starters, dividend coverage is healthy (forecast to be 1.9 times this year) and secondly, the group just lifted its payout by 7%, which suggests management isn’t concerned about dividend affordability.

City analysts expect LGEN’s dividend to continue rising in the years ahead, with payouts of 17.6p per share and 18.9p per share pencilled in for FY2019 and FY2020, respectively, meaning the stock could be an absolute cash cow for investors. With the shares trading on a P/E of just 8.6, I think LGEN shares are a fantastic income buy right now.

The post Like dividends? I think you’ll love these FTSE 100 dividend stocks appeared first on The Twelfth Magpie.

More reading

• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• Here’s why I bought this 7.6%-yielding FTSE 100 dividend stock instead of saving in a Cash ISA
• Is now the perfect time to buy Rolls-Royce, Babcock and BAE System shares?
• How much would you need in a Stocks and Shares ISA to match the State Pension?
• Here’s a quick and easy way to start earning passive income this summer with a spare £1,000

Edward Sheldon owns shares in Mondi, BAE Systems, and Legal & General Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Low-quality stock

In my view, there are a number of factors that could keep BT’s share price depressed for a while yet. For starters, City analysts are downgrading their earnings forecasts for this year. Over the last month, the consensus earnings estimate for the year ending 31 March 2020 has declined by nearly 2%, while over the last three months, the consensus forecast has dipped by 4%. These earnings downgrades are likely to put downward pressure on the stock.

Secondly, BT’s balance sheet remains a problem. At the end of the last financial year, the group had net debt of around £11bn and a pension deficit of over £7bn on its books. Additionally, goodwill and intangibles sitting on the balance sheet amounted to £14.4bn. By contrast, equity on the balance sheet was just £10.2bn. These figures suggest that BT is a ‘low-quality’ stock.

Thirdly, I still have concerns over the sustainability of BT’s dividend. Dividend growth has dried up in recent years, and operating cash flow is falling. The high prospective yield of 7.2% suggests the market believes a dividend cut is on the horizon.

Weighing up all these factors, I think BT shares are best left alone right now.

I’d buy this stock

One FTSE 100 company I would be happy to invest my money in today is Legal & General Group (LSE: LGEN). It also trades at a low valuation and offers a high yield. However, I believe the outlook for the shares is far more promising than the outlook for BT.

Unlike BT, analysts are currently upgrading their earnings estimates for LGEN as recent financial results have been robust. Over the last one and three months, the consensus earnings forecast for the year ending 31 December has risen by 1.3% and 2.1%, respectively. This is a positive development and should help support the share price.

Legal & General has also lifted its dividend payout at a healthy rate in recent years, which suggests things are ticking along nicely. Looking ahead, analysts expect a 7% hike this year and an 8% hike next year. This dividend growth could put upwards pressure on the share price.

Additionally, news flow from the financial services giant recently has been positive. For example, earlier this month, the group announced it had just completed the largest-ever UK bulk annuity deal with Rolls Royce.

Legal & General shares were trading above 290p in late April, but they have pulled back recently amid market volatility. With the shares trading on a P/E ratio of 8.2, and offering a dividend yield of 6.5% right now, I think it’s a good time to be building a position in the stock.

The post Tempted by the BT share price? I’d buy this FTSE 100 dividend stock instead appeared first on The Twelfth Magpie.

More reading

• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• Here’s why I bought this 7.6%-yielding FTSE 100 dividend stock instead of saving in a Cash ISA
• How much would you need in a Stocks and Shares ISA to match the State Pension?
• Here’s a quick and easy way to start earning passive income this summer with a spare £1,000
• How much would I need to invest in these FTSE 100 dividend gems for a £29,061 ISA passive income?

Edward Sheldon owns shares in Legal & General Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

DS Smith

From a long-term investing perspective, I continue to see a lot of appeal in the FTSE 100’s packaging companies due to the fundamental role that packaging plays in e-commerce. And DS Smith (LSE: SMDS) – which is a leading producer of customer-specific corrugated packaging – is my top pick in the sector.

DS Smith shares have been beaten down in the last 12 months on the back of concerns over global growth, falling from over 500p a year ago to around 315p today.  However, I see this share price weakness as a buying opportunity because the company continues to advance. For example, in a recent trading update, the group told investors that the last financial year had been one of “substantial progress” and that it had seen ongoing growth in corrugated box volumes and market share gains.

DS Smith paid out 14.4p per share in dividends last year, and for the financial year just ended (30 April), analysts expect a 10% dividend hike which would take the payout to 15.8p. That pushes the yield up to a healthy 5%, which is a steal in today’s low-interest-rate environment, in my view. With the stock trading on an estimated P/E ratio of just 9.4, I think DS Smith offers top value right now.

Legal & General

I’m also seeing considerable value in one of my favourite FTSE 100 dividend stocks Legal & General Group (LSE: LGEN) at present. Its share price has experienced a 10% pullback over the last six weeks or so, which means a higher yield is on offer for investors. Currently, the prospective yield is a lofty 7%.

Legal & General has been a fantastic income stock over the last decade as the dividend payout has risen significantly. For FY2008, the dividend payout was just 4.06p per share, yet for FY2018 the company paid out 16.4p per share, which represents a stunning annualised growth rate of 15% over the 10-year period.

Looking ahead, I’m not expecting that level of dividend growth in the next few years, however, I think growth of 5%-7% is totally achievable for the financial services giant, given the company’s solid momentum, diversified business model, and healthy level of dividend coverage. Currently, analysts are forecasting dividend growth of 6.9% this year and 7.9% the year after.

After the recent share price pullback, Legal & General shares can be picked up on a forward P/E ratio of around 8. I see that ratio as too cheap. With a yield of around 7% on offer, I think now is the time to be accumulating the stock.

The post Two FTSE 100 dividend stocks yielding 5%+ I’d buy in June appeared first on The Twelfth Magpie.

More reading

• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• Here’s why I bought this 7.6%-yielding FTSE 100 dividend stock instead of saving in a Cash ISA
• How much would you need in a Stocks and Shares ISA to match the State Pension?
• Here’s a quick and easy way to start earning passive income this summer with a spare £1,000
• How much would I need to invest in these FTSE 100 dividend gems for a £29,061 ISA passive income?

Edward Sheldon owns shares in Legal & General Group and Ds Smith. The Motley Fool UK has recommended DS Smith. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

With that in mind, here’s a look at two FTSE 100 dividend stocks I’d be happy to buy for my ISA today.

Legal & General Group

Legal & General (LSE: LGEN) remains one of my favourite FTSE 100 dividend stocks. Not only is the yield here extremely attractive, at around 6.5% (forecast yield for FY2019), but the stock’s dividend coverage ratio is also healthy at 1.9 times, meaning the payout looks sustainable. Furthermore, the group has now registered nine consecutive dividend increases, which shows that shareholders are a priority.

One of the key strengths of Legal & General, to my mind, is its diversified business model. Not only is the company a major player in insurance and investment management, but it also specialises in retirement solutions for individuals and pensions de-risking for corporations.

Additionally, it has ventured into infrastructure investment and retirement living in recent years and announced last week that it plans to build 3,000 retirement homes in city centres across the UK in the next five years.

Overall, the group’s long-term strategy is driven by six global growth drivers, including the world’s ageing population and technological innovation.

Despite the progress Legal & General has made over the last decade, its shares still trade very cheaply as many investors appear to have lumped the stock in the ‘UK domestic stock/Brexit’ basket. Right now, the stock’s forward P/E ratio is just 8.3. I think that’s a bargain. Note that broker Jefferies just raised its price target for the stock to 300p.

Mondi

I also continue to like FTSE 100 packaging stocks at the moment due to the fact that packaging plays an important role in online shopping – if you buy something online, it generally comes in a cardboard box. With e-commerce likely to continue increasing in popularity in the years ahead, demand for cardboard packaging should remain robust, and this should drive growth for packaging specialists.

One stock that I like in this sector is Mondi (LSE: MNDI) – an under-the-radar FTSE 100 stock that was spun off from mining giant Anglo American around 12 years ago. Mondi appears to have plenty of momentum at the moment. Last week, it told investors it delivered a “strong performance” in the first quarter, with underlying EBITDA for the three months up 16% on the same period last year. The company also advised that despite macroeconomic uncertainty, it’s confident it can continue to deliver a “strong and industry-leading performance.”

Mondi’s dividend prospects look appealing. The yield is robust at 4.2% (forecast for FY2019), coverage is strong at around 2.3 times, and the company has now registered nine consecutive dividend increases. With the stock trading on a forward P/E of just 10.2, I see a lot of value on the table right now.

The post Have a Stocks & Shares ISA? Here are two FTSE 100 dividend stocks I’d buy today appeared first on The Twelfth Magpie.

More reading

• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• Here’s why I bought this 7.6%-yielding FTSE 100 dividend stock instead of saving in a Cash ISA
• How much would you need in a Stocks and Shares ISA to match the State Pension?
• Here’s a quick and easy way to start earning passive income this summer with a spare £1,000
• How much would I need to invest in these FTSE 100 dividend gems for a £29,061 ISA passive income?

Edward Sheldon owns shares in Legal & General Group and Mondi. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Yet analysing the investment case for LGEN, I think the stock could have plenty more upside from current levels. Here’s a look at four reasons I believe the stock can keep rising.

FY2018 results

For starters, recent full-year results released on 6 March were decent, with the company advising that it is positioned well for future growth. For FY2018, operating profit increased 10% and earnings per share rose 7% – a solid performance given the political uncertainty and equity market weakness experienced last year. This demonstrates the resilience of Legal & General’s diverse business model which is linked to a number of growth drivers including the world’s ageing population.

The group also said that it remains confident that it can continue its momentum into 2019 (as it believes that its growth drivers are largely unaffected by on-going political and economic uncertainty) and stated that it’s on track to deliver earnings per share compound annual growth of 10% up to 2020. If the company can deliver on this earnings guidance, the share price should keep rising.

7% dividend increase

What I also liked about the recent full-year results was that the group hiked its dividend payout by a healthy 7% to 16.42p per share. To my mind, that’s a statement of confidence from management in itself. That marks nine consecutive dividend increases from the group now – an excellent achievement – and analysts expect further hikes for FY2019 and FY2020. Again, if the company can deliver on this dividend growth, it should place upward pressure on the share price.

Broker upgrades

Another reason I think the outlook for the stock remains favourable is that brokers are upgrading their earnings forecasts for this year and next. For example, in the last month, brokers have upgraded their EPS estimates for FY2020 by nearly 2.5%. That’s a positive development as upgrades can also help drive a company’s share price higher.

Valuation and dividend yield

Finally, the stock currently looks too cheap, in my view, despite its 20% rise this year. For example, with analysts expecting earnings of 32.1p per share for FY2019, the shares currently trade on a forward-looking P/E of just 8.7. I see that as a bargain valuation.

Furthermore, with analysts expecting the group to pay out 17.5p per share in dividends for FY2019, the stock currently offers up a prospective dividend yield of 6.3%. To my mind, that looks overly generous.

So overall, looking at Legal & General’s recent results and valuation, I see a lot of appeal in the stock right now. I continue to rate the stock as one of the most attractive dividend stocks in the FTSE 100 index.

The post This top FTSE 100 dividend stock is up 20% in 2019. Here’s why it could have further to go appeared first on The Twelfth Magpie.

More reading

• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• Here’s why I bought this 7.6%-yielding FTSE 100 dividend stock instead of saving in a Cash ISA
• How much would you need in a Stocks and Shares ISA to match the State Pension?
• Here’s a quick and easy way to start earning passive income this summer with a spare £1,000
• How much would I need to invest in these FTSE 100 dividend gems for a £29,061 ISA passive income?

Edward Sheldon owns shares in Legal & General Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The next down-leg in the economy could take the banks’ profits, dividends and share prices with it. Meanwhile, the upside potential for investor total returns looks capped, to my eyes, because of the way the stock market seems to be compressing valuations in anticipation of the next downturn.

A decent track record

I’d rather hunt for big dividend yields in the wider financial sector and not just among the banks. One promising candidate is Legal & General Group (LSE: LGEN) the FTSE 100 life assurance, investment management and general insurance provider.         

The company has a decent six-year record of generally rising normalised earnings per share, operating cash flow, and dividends. And at the recent share price close to 277p the stock scores well against traditional value indicators with the price-to-earnings ratio running around nine and the dividend yield just over 5.9%. Meanwhile, City analysts have pencilled in an advance in the dividend of almost 7% for 2019. Things seem to be ticking along nicely.

Today’s full-year results report reveals that operating profit rose 10% in 2018 compared to the year before and earnings per share lifted 7%. The directors expressed their optimism by pushing up the full-year dividend by 7%. They said in the report that the firm is well placed to grow further and take advantage of organic growth opportunities and bolt-on acquisition opportunities. The plan is to support the company’s strategy with ongoing investment in technology “in a measured way.”

A compelling strategy

Legal & General is active in the three main areas of investing and annuities, investment management, and insurance. And the strategy involves aligning the business with the six long-term growth drivers of ageing demographics, globalisation of asset markets, creating new real productive assets, reform of the welfare state, technological innovation, and providing “today’s capital.”

The directors go on to explain that the focus of the firm has led to it participating in “material, high growth markets” where the firm is a leader or where it can “leverage” its expertise to increase its market share. I must own up to having a niggle in my mind about the apparent cyclicality inherent in Legal & General’s business. But the directors asserted in the narrative that the structural drivers around which the company’s strategy is constructed “are largely unaffected by on-going political and economic uncertainty.” Indeed, they are“confident” Legal & General will continue its momentum into 2019.

The generous dividend yield and the directors’ bullish noises make the shares tempting to me, and I’d certainly rather buy the stock than I would Barclays.

The post Forget Barclays and its big yield! I think this 6%-yielding FTSE 100 stock could be a better buy appeared first on The Twelfth Magpie.

More reading

• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• Here’s why I bought this 7.6%-yielding FTSE 100 dividend stock instead of saving in a Cash ISA
• How much would you need in a Stocks and Shares ISA to match the State Pension?
• Here’s a quick and easy way to start earning passive income this summer with a spare £1,000
• How much would I need to invest in these FTSE 100 dividend gems for a £29,061 ISA passive income?

Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

There are many ways to generate passive income, but dividend investing would have to be one of the easiest. With dividend investing, you get paid regular cash payments simply for being a shareholder (i.e. an owner) of the company, meaning it’s a lot less hassle than other methods of generating passive income such as owning buy-to-let property, or starting an online business.

Here in the UK, there are loads of stocks with high dividend yields, so it’s easy to put together a portfolio that churns out a substantial amount of cash flow. Here’s a look at two FTSE 100 dividend stocks that I believe could be worth a closer look if you’re looking to build a second income.

Legal & General

Legal & General (LSE: LGEN) is one of my favourite high-yield dividend shares. Not only does the stock offer a fantastic yield of around 6% (using last year’s dividend of 15.4p per share), but the group also has a solid track record of lifting its payout, having now recorded eight consecutive inflation-beating increases. City analysts expect further dividend increases for FY2018 and FY2019 too, meaning the stock offers an even higher yield on a forward-looking basis. Dividend coverage looks solid too, which suggests that the dividend should be sustainable and that investors aren’t at risk of a dividend cut.

Another reason I like Legal & General is its diversified business model. The group offers investment management, retirement and insurance solutions, so its eggs aren’t all in one basket. As a key player in the exchange-traded fund (ETF) space, the group looks well-placed to benefit as UK investors save more for retirement.

There are risks to the investment case with LGEN, of course, as there are with any stock. However, with this stock currently trading on a P/E ratio of just 8.1, I believe the risks are baked into the share price. The current low valuation and high yield are a great opportunity, in my view.

Aviva

Another FTSE 100 dividend stock that I hold in high regard for its passive-income generating potential is fellow financial services group Aviva (LSE: AV). It currently offers a trailing yield of 6.6%, and City analysts expect a 10% dividend hike for FY2018 and FY2019, meaning those buying now could potentially pick up a FY2019 yield of nearly 8%. Dividend coverage is solid here too.

Aviva shares underperformed the FTSE 100 in the second half of last year after CEO Mark Wilson stepped down in October, leaving the group without a leader. Yet in my view, Aviva’s share price decline between July and December was a little excessive and, in late December, when the stock was under 370p, I stated it was simply too cheap. Since then, the shares have surged around 14%.

However, despite the share price bounce over the last month, I still believe there’s plenty of value on offer right now, as the stock’s forward P/E is just 7. For those seeking passive income, I think Aviva shares are certainly worth considering.

The post Two FTSE 100 dividend stocks that could help build a second income appeared first on The Twelfth Magpie.

More reading

• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• Here’s why I bought this 7.6%-yielding FTSE 100 dividend stock instead of saving in a Cash ISA
• How much would you need in a Stocks and Shares ISA to match the State Pension?
• A £10,000 ISA buys 1,931 shares in these 6.5%+ yielding dividend stocks!
• Here’s a quick and easy way to start earning passive income this summer with a spare £1,000

Edward Sheldon owns shares in Legal & General Group and Aviva. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Unilever

Unilever is currently my top holding. I haven’t owned the stock for that long, but I’ve been slowly building a stake in the company this year and I plan to keep increasing my position size when attractive opportunities arise. What do I like about Unilever? Well for starters, I like the consistency of the group’s revenues and profits. With an outstanding portfolio of well-known brands, it’s a ‘sleep-well-at-night’ type stock. Secondly, I like the group’s reach – it’s a truly global player, and it also has significant emerging markets exposure, which provides a growth story. Thirdly, it has an excellent dividend growth track record and the yield is healthy.

Legal & General

My second-largest holding is currently Legal & General. The main reason I like LGEN is that it’s a cash cow. Right now, its yield is over 7%, and I see that yield as sustainable in the medium term. I also like the fact that the company has a diversified business model (i.e. insurance, retirement solutions, and ETFs) which is based on a number of key global growth drivers.

Royal Dutch Shell

My next largest holding is Shell. One of the main reasons I own Shell is that I can rely on its dividends. The company hasn’t cut its divi since World War II, which shows that shareholders are a priority. Of course, the fact that the yield is a high 6.2% is another advantage. Like LGEN, it’s a cash cow.

DS Smith

My fourth-largest holding is packaging specialist DS Smith. The reason I’ve loaded up here is that I see the stock as a play on the online shopping boom. If you buy something online these days, it generally comes in a cardboard box, so I see a long-term growth story here. I also like the stock’s yield (currently over 5%) and the shares look great value at present, so I’ve added more to my portfolio recently.

Prudential

Finally, my fifth-largest holding is financial services firm Prudential. The key reason I’ve built up a solid position here is the firm’s exposure to Asia. There may be concerns over China/emerging market growth right now, but over the next few decades, I see the demand for financial products rising significantly across these regions. Given that PRU generates around 30% of its revenues from Asia, the firm looks well-placed to benefit. The company also has a good dividend growth track record.

So there you have it – my top five holdings right now. As you can see, there’s a strong focus on dividends, as I believe that they’re fundamental when it comes to generating long-term wealth from stocks. Of course, this is just a snapshot in time. My top five holdings could change in the near term as share prices fluctuate and I add to positions. Speaking of adding to positions, tomorrow I’ll be looking at five stocks I want to buy in 2019, so make sure you check out that article.

The post Ask a Fool analyst: What are your top stock holdings heading into 2019? appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in Unilever, Legal & General, Royal Dutch Shell, DS Smith and Prudential. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended DS Smith and Prudential. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.