Savings and investment firm M&G (LSE: MNG) yields a stunning 7.5%, covered 2.4 times by earnings. It looks like one of the best stocks to buy for both dividend income and growth. Its share price has climbed 72% in a year (although don’t expect that breakneck pace to continue).

The FTSE 250 stock was spun off from Prudential in 2019. M&G looks undervalued to me, trading at just 5.5 times earnings. Perhaps that’s because it lacks a long-term track record. As well as one of the best stocks to buy for income, it’s one of the cheapest.

The FTSE offers rich pickings for dividend stocks

M&G’s first full-year results in March were mixed. Adjusted operating profit before tax fell from £1.15bn to £788m, although this was largely down to initial infrastructure costs. Assets under management rose following an acquisition, but investor outflows totalled £6.6 billion, amid weak investment performance.

The stock market rally will hopefully reverse that. Despite these concerns I’d buy M&G for high income, and steady growth.

Cardboard box and packaging specialist Mondi (LSE: MNDI) has a less dramatic yield of 4% a year, but that’s still solid. The FTSE 100 company looks to be among the best stocks to buy today because it gives investors exposure to the fast-growing e-commerce sector. Earlier this month it reported “strong” demand as online shopping surged. Q1 earnings were down 8% to €353m year-on-year, but jumped 14% on the previous quarter.

The best stocks to buy for long-term income and growth

Like a growing number of companies, Mondi has seen input costs rise as paper, resin, energy and transport prices increased. However, it has some pricing power, and has been able to pass on higher costs to customers We may buy less stuff online now that we can hit the high street again, but I believe the long-term trend for e-commerce is upwards. Trading at 17.2 times earnings, the Mondi share price isn’t dirt cheap, but it isn’t expensive either.

FTSE 100 power giant SSE (LSE: SSE) nearly always features on my list of the best stocks to buy for income. It has a terrific record of increasing its dividend in line with prices, and now yields 5.3%.

SSE faces a tricky balancing act as it looks to establish itself as a renewables specialist while also relying on income from legacy fossil fuels. So far, it’s risen to this challenge better than, say, BP and Royal Dutch Shell, so I remain optimistic.

On Wednesday, it reported a 1% increase in full-year underlying operating profit to £1.5bn, after taking a £170m knock from the pandemic. Underlying earnings per share rose 5% to 87.5p. Management reaffirmed its commitment to grow the dividend in line with RPI for the next two years. Thereafter, it depends on how success of its green transformation.

Today, SSE remains one of the best FTSE 100 stocks to buy for solid, high income. I’m optimistic that’ll continue.

The post Best stocks to buy for income! I’d target these 3 FTSE dividend shares appeared first on The Twelfth Magpie.

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Harvey Jones 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.

Today I’m looking at a trio of FTSE 100 stocks that have informed the market of their intention to return cash to their owners. Thanks to their size and all-round resilience, I think all are worthy of consideration by those with one or both eyes on retirement.

Back on track

FTSE 100 paper and packaging group Mondi (LSE: MNDI) is first up.

Having withdrawn its final dividend of 55.72 euro cents per share back in April, the £7bn cap said earlier this month that it would now pay holders 29.75 euro cents for 2019.

It gets better. In addition to this payment, the company also announced a 2020 interim dividend of 19 euro cents per share. This is despite pre-tax profit in the six months to the end of June slumping 26% to €466m.

On a little less than 14 times estimated FY20 earnings, Mondi looks cheap in my book. The share price is still 35% below where it peaked in 2018, despite rising free cash flow and consistently decent margins and returns on invested capital.

Factor in the likely future growth in demand for sustainable packaging and I think this would be a great addition to any retirement-focused portfolio.

Defensive dividends

BAE Systems (LSE: BA) was my top pick for July. Since then, the shares have increased 9% in value. As pleasing as this is, the potential for capital gains wasn’t my prime motivation for highlighting the stock. Rather, it was the defensive qualities of BAE combined with the likelihood of the FTSE 100 giant confirming that it would reinstate its dividend. The latter has now happened. 

At the end of July, BAE’s management confirmed that a 13.8p per share cash return, once proposed and then deferred, would now be made to holders in September. On top of this, an interim dividend of 9.4p per share would be distributed in November to cover the first six months of 2020. 

According to CEO Charles Woodburn, BAE expects “a good second half to the year“. This is, of course, so long as we don’t get a significant second wave of the coronavirus. As things stand, group sales are expected to rise by “a low-single digit percentage compared to last year”.

Despite the subsequent rise in the share price, BAE still looks good value to me. The shares trade on 12 times forecast FY20 earnings. 

Viva Aviva

A third FTSE 100 stock that has restarted paying dividends is insurance firm Aviva (LSE: AV). Back in April, the company withdrew its dividend policy following guidance from the Bank of England.

This month, however, a second interim dividend of 6p per share was declared by management. Like Mondi, this is despite a heavy fall in pre-tax profit over the first half of 2020 (down 29% to a little under £1.1bn).

At 6 times forecast earnings, Aviva look priced for the apocalypse. However, prospective holders should know that the company still plans to review its longer-term dividend policy.

In practice, this will mean a lower but, importantly, sustainable payout. The remaining cash will pay down debt. Considering the latter is on par with the value of the entire company, this strikes me as entirely rational.

The post Dividends are back! Here are 3 FTSE 100 income stocks I’d buy for retirement appeared first on The Twelfth Magpie.

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Paul Summers 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.

Trading update

Although profits were hit by the pandemic, the damage at Mondi was limited compared to many other FTSE 100 stocks. Operating profits were €518m in the first six months of the year, compared to €679m in the same period last year.

The main reason for the dip in profits was the downturn within the paper industry. With offices around the country shut, the demand for paper has been significantly lower, which led to lower selling prices. As such, operating profits from the paper segment were €106m, down 45% on last year. Even so, the firm has stated that order books have improved throughout June and July, even if demand is still weaker than normal.

On the other hand, profits from the packaging sector were more resilient. In fact, profits from both the corrugated and flexible packaging segments were only down 11%. This indicates a very resilient performance in testing conditions, especially as factories were forced to shut at one point.

The FTSE 100 stock will pay a dividend!

One of the major positives from the trading update today was the news that Mondi will resume dividend payments. This has been enabled by the robust trading performance in the first half of the year, and its strong financial position. As a result, the company has declared a dividend of 29.75 euro cents, as well as an interim dividend of 19 cents. This total of 48.75 cents will go ex-dividend on 21 August. This means that all Mondi shareholders who purchase shares before this date shall be entitled to the payment.

The current dividend represents a yield of over 3%. Although slightly less than payments in the last few years, it’s still a very high yield in comparison to other FTSE 100 stocks. The company also has a dividend cover of between 2 and 3. As a result, it will still have money to deal with the impacts of the pandemic, as well as developing the business.

Strong financial position

The trading update also affirmed that Mondi has a very strong financial position. Net debt has actually decreased from €2.2bn to around €2bn, and this can be easily covered by operating cash flow.

The liquidity position is also very strong. In fact, the group has access to net cash of €606m and €805m of undrawn committed debt facilities. This large amount of cash should help the company deal with the crisis and capitalise on any opportunities that arise.

After this recent trading update, I’m very confident about the future of this FTSE 100 stock. The return of dividends is very welcome news, and the firm has evidently managed to cope well with the challenging environment. I’d therefore buy Mondi shares today.

The post This FTSE 100 stock has just reinstated its dividend. I’d buy today! appeared first on The Twelfth Magpie.

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Stuart Blair owns shares in 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.

Taken collectively, it’s my belief that these fab five should do well for those new to the stock market and wanting to adopt a buy-and-hold strategy. 

Luxury pick

The distinctive Burberry check has been around since the 1920s and is synonymous with luxury. The rise of middle-class consumers in parts of the world such as China (which tend to hold Western brands in high regard) should ensure this remains the case for some time to come.

Burberry has long shown itself to be a quality business, generating high returns on the money that it invests. The shares aren’t cheap — and can be rather volatile when global growth looks shaky — but I do think this is one to keep for years. I’ll be looking to add to my own holding on any price weakness.

Drink up

Drink leviathan Diageo boasts a corking portfolio of brands including Guinness and Johnnie Walker whose popularity should endure while technology fads come and go. 

Since hitting an all-time high in September, however, the shares have dipped in value. This could continue if Boris Johnson wins a majority in the forthcoming election as the value of sterling rises on a bit of Brexit ‘certainty’ (Diageo makes most of its money overseas).

Not that any of this should concern committed buy-and-holders. A falling share price also means a higher dividend yield which, if building your wealth is important, should then be reinvested back into the market. 

Income stalwart

Regardless of the geopolitical climate, the world will always be in need of healthcare. That’s why I think most portfolios could benefit from the inclusion of a pharma giant or two.

Since AstraZeneca looks priced to perfection right now, my choice from the UK would be peer GlaxoSmithKline, particularly as the latter’s dividend now looks safer than it once did. The consumer healthcare joint venture with Pfizer has started well and Glaxo recently raised earnings guidance for the full year. A price-to-earnings ratio (P/E) of 14 is still far below its five-year average of 23.

Set sail

Higher fuel costs, poor weather and a travel embargo against Cuba have combined to hit cruise line operator Carnival‘s earnings and share price recently.

Despite this blip, I’m convinced that future prospects are still excellent and that cruising will continue to increase in popularity with holiday seekers of all ages around the world (and particularly those in relatively untapped markets such as Asia).

The fact that Carnival’s shares also trade at less than 10 times forecast FY20 earnings and yield 4.9% make it arguably the biggest bargain of today’s selection. 

Packaged payouts

For added diversification, packaging firm Mondi is my final pick for a starter portfolio. 

The £8bn cap is larger than peers Smurfit Kappa and DS Smith and boasts the highest returns on capital and operating margins of the three, making it the natural choice for quality-focused investors. 

Following a sell-off, Mondi’s shares are now 25% lower in price than they were in August and yield 4.1% based on analyst estimates. The dividends should also be covered over twice by profits, suggesting there’s no risk of a cut any time soon. 

The post Have £5k to invest? Here are 5 stocks I’d buy for a FTSE 100 starter portfolio appeared first on The Twelfth Magpie.

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Paul Summers owns shares of Burberry and Carnival. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Burberry, Carnival, Diageo, and 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.

Distributing profits

A great example of the type of companies I’m talking about is distributor Bunzl (LSE: BNZL). The firm is a crucial supplier for many companies because it distributes things like cleaning products and paper plates for the catering industry. These are hardly the most exciting products, but they’re essential for businesses to function.

Where Bunzl excels is its size and experience in the sector. Distribution is a very low margin business, and most companies can’t compete with the sector’s biggest players, which includes Bunzl. The firm also has a good track record of completing and integrating bolt-on acquisitions, mostly smaller businesses that would benefit from being absorbed.

With its economies of scale and stream of acquisitions, Bunzl has been able to grow earnings per share at a compound annual rate of 9% over the past six years. City analysts don’t expect the business to slow any time soon either. Earnings growth of 26% is pencilled in for this year, followed by growth of 4% for 2020.

Right now, you can snap up its shares for just 15 times forward earnings, approximately 25% below its five-year average multiple of 20. There’s also a dividend yield of 2.7% on offer for income investors.

Booming growth

Bunzl’s earnings growth is impressive, but it pales in comparison to Mondi’s (LSE: MNDI) reported growth over the past six years.

This packing group has reported average earnings growth of 17% per annum over the past six years. Net profit jumped from €386m in 2013 to €824m for 2018. Unfortunately, City analysts are forecasting a slight decline in earnings over the next two years. Nonetheless, I believe that, over the long term, this company is exceptionally well-positioned to benefit from the rise in online shopping and global trade.

More importantly, Mondi is highly profitable. Its operating profit margin has averaged 12.9% for the past six years, compared to the average profit margin of companies traded on the London market of 8%.

Management has been investing some of the company’s profits back into the business to drive growth, but it’s also returning a lot of money to shareholders. The current dividend yield stands at 4.2%, and the dividend payout is covered 2.2x by earnings per share.

Today, you can snap up shares in this business for just 11 times forward earnings, a steal considering Mondi’s fat profit margins and its current dividend yield. Also, the stock has historically traded for around 15 times forward earnings. That implies there could be an upside of as much as 36% from the current price if the market decides to re-rate the stock.

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Rupert Hargreaves owns no 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.

While partial to a dividend as much as anyone, I think it’s preferable to look for companies with a long history (i.e. around 10 years) of consistently increasing their annual dividends, not those that pay the most. More often than not, the latter end up getting cut anyway. Let’s look at some examples of top-tier companies I think make the grade. 

Three hikers

Accountancy software provider Sage (LSE: SGE) is a consistent dividend hiker, having increased its payout every year for the last 10 years. That, for me, sends a clear message we’re dealing with a strong and stable performer, even if — at 2.5% — the yield won’t get many investors salivating.

Another thing worth mentioning about Sage’s income credentials is the fact its payout ratio — the proportion of dividend its pays out relative to earnings — is still pretty low at a little under 40%. That should mean there’s scope for the company to continue throwing more cash at shareholders in the future. 

The above, when coupled with Sage’s history of generating high returns on capital and big operating margins, lead me to think its current valuation — at almost 24 times earnings — isn’t unreasonable. Quality businesses rarely go on sale at bargain-basement prices. 

Paper provider Mondi (LSE: MNDI) is another firm that’s shown a willingness to lift the proportion of profit it distributes to shareholders. With one exception (2016), it’s increased its dividend every year in the last 10. Right now, it’s forecast to yield a good-but-not-excessive 4.5% in FY2019.  

That’s attractive in my view, especially as payouts look likely to be covered well over twice by profits. Again, to be clear, there’s really no point buying a high-yielding stock if it looks like it’ll ultimately struggle to pay out to shareholders. Mondi’s owners should be just fine for now. 

Like Sage, the £8bn cap achieves good returns on capital and fat margins. Unlike Sage, Mondi’s stock currently changes hands for less than ten times expected full-year earnings after falling just over 25% in value over the last twelve months. Although further dips can’t be ruled out as we approach our Halloween showdown with the EU, that already looks temptingly cheap.

A final FTSE 100 member worth mentioning is Unilever (LSE: ULVR). The owner of brands such as PG Tips, Magnum and Marmite may not generate much excitement among market participants, but the fact remains that — in addition to its defensive qualities — it’s long been a source of rising dividends.

The near-3% yield, adequately covered 1.5 times by profits, looks pretty safe to me and I suspect investors are less likely to ditch the stock in the run-up to Brexit than other stocks in the FTSE 100. Moreover, it’s worth mentioning that had you purchased the shares a decade ago, you’d actually be getting a far higher yield on your original investment, thanks to the 200%+ rise in the company’s share price since then. 

The only drawback to all this is that the predictability of Unilever’s earnings and its geographical diversification means the stock is nearly always expensive to buy. Right now, its price-to-earnings (P/E) ratio is 22 — slightly higher than its five-year average of 21. 

The post Forget the high yielders. I’d buy these 3 FTSE 100 dividend growth stocks instead appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Sage Group. 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.

Sustainable packaging solutions

Mondi (LSE: MNDI) is an under-the-radar FTSE 100 company that specialises in sustainable packaging solutions. Spun off from mining giant Anglo American around 12 years ago, the group is fully integrated across the packaging and paper value chain and operates in over 30 countries.

Mondi’s share price has fallen around 12% over the last year on the back of concerns over industry supply and demand dynamics and the possibility of a global economic slowdown. However, to my mind, the long-term growth story remains attractive – as a supplier of sustainable packaging solutions, the group looks well placed to capitalise as society continues to become more environmentally aware. For example, as a major producer of paper bags, the group should benefit as the world moves away from plastic. A trading update yesterday revealed that for the half-year to 30 June, Mondi is expecting underlying earnings per share to be between 4% and 11% higher than last year.

At the current share price of 1,830p, the shares trade on a forward-looking P/E ratio of just 11.2 and offer a prospective dividend yield of 4%. To my mind, these metrics are attractive given the group’s long-term growth prospects. As such, I’d be happy to buy the stock for my own portfolio today.

Long-term growth story 

Another FTSE 100 dividend stock that I’d be happy to buy for my portfolio right now is financial services giant Prudential (LSE: PRU). Like Mondi, the stock is a little out of favour at the moment. 18 months ago, Prudential shares were changing hands for 2,000p, however, today they can be picked up 15% cheaper.

There are a number of reasons why Prudential shares are still well off their early-2018 highs. For starters, the group’s substantial exposure to China is spooking investors amid the ongoing trade war between the Asian powerhouse and the US. Secondly, Prudential is in the process of de-merging its UK and European operations, which adds further uncertainty to the investment case.

However, looking beyond these short-term issues, I see significant investment appeal in the stock. In my view, Prudential’s exposure to fast-growing countries across Asia provides the potential for significant long-term growth, as by 2040 Asia will account for around half of global GDP, according to McKinsey. Increasing demand for financial services products such as savings accounts and life insurance across the region in the years ahead should benefit Prudential. 

PRU shares currently trade on a P/E ratio of just 10.9 and sport a prospective dividend yield of a healthy 3%. At that valuation, I think the shares are a bargain.

The post Two FTSE 100 stocks I’d add to my dividend portfolio today appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in Mondi and Prudential. The Motley Fool UK has recommended 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.

For today’s article, I’ve been hunting through the FTSE 100 for the kind of stock I’d be happy to buy and hold with a £1,000 lump sum. The two companies I’ve found are profitable, pay attractive dividends, and form an essential part of modern economies. I reckon they’re worth a closer look.

Paper profits

The share price of FTSE 100 packaging group Mondi (LSE: MNDI) has risen by more than 300% since the firm’s flotation in 2007. The company has delivered a lot of value for shareholders, while expanding its operations through a mix of organic growth and acquisitions.

However, Mondi stock has come off the boil over the last year, as investors have started to price in the risk of an economic downturn. I accept this risk but, on the other hand, I think we need to recognise how essential this business is to modern life.

Packaging is an essential part of modern industry and commerce, especially online. Although I hope packaging will become more sustainable and efficient in the future, I believe demand is likely to continue to grow in most developed and emerging markets.

For this reason, I think the 20% fall we’ve seen in MNDI stock since last summer could be a decent opportunity to buy. At current levels, the shares are priced on 10.9 times 2019 forecast earnings and offer a dividend yield of 4%. I see that as an attractive valuation. Indeed, I would buy the shares myself, if I didn’t already own shares in another packaging company.

Rebooting the business

When banks and other large companies have IT problems, a common cause is that, behind the scenes, they are running very old systems. An industry has emerged that specialises in operating, supporting and developing older IT systems. One of the larger players in this sector is FTSE 100 firm Micro Focus International (LSE: MCRO).

Micro Focus shares have risen tenfold since the group’s flotation in 2005, as chairman Kevin Loosemore has guided the group through a series of acquisitions and growth opportunities.

Unfortunately Loosemore’s biggest deal to date, the 2017 acquisition of HP Enterprise’s software business, has caused serious indigestion. Things seem to be back on track now, but work is still underway to complete the integration, which has disrupted new sales.

Time to buy?

The market remains jittery about Micro Focus. So when the chairman cashed in £11.6m worth of stock last week, I wasn’t surprised to see the shares fall sharply. However, Loosemore still claims to have half his net worth invested in this company. And the results themselves were largely as expected, with revenue down slightly but profit margins and cash generation up.

I missed buying MCRO stock at the start of the year when I though it looked cheap. But after last week’s drop, the shares trade on less than 10 times forecast earnings and yield 5.5%. If the business can return to steady growth, I think the stock could command a much higher valuation. I’ve added the shares back to my buy list.

The post Have £1,000 to invest? 2 FTSE 100 dividend stocks I’d buy today appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Micro Focus. 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.

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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.

Steady income 

Between 2014 and 2017, Morrisons had a rough time as the group struggled to compete against the rise of discounters Aldi and Lidi which ravaged the whole UK supermarket industry.

These discounters are still growing, but Morrisons’ new management has managed to steady the ship by doubling down on what it does best, offering excellent quality food at attractive prices (new partnerships have also helped return the company to growth). 

As customers have returned, the group’s sales and profits have both returned to growth. After falling to a low of £16.1bn in 2016, Morrisons reported sales of £17.7bn in fiscal 2019, up nearly 10% in just a few years.

Meanwhile, after falling into the red in 2014 and 2015, the company is now back in the black and analysts are expecting it to report a net profit of £333m for fiscal 2020. Analysts have pencilled in earnings per share of 14p, up 26% year-on-year. 

A return to profitability has also allowed Morrisons to reintroduce its dividend. After eliminating the payout to shareholders in 2016, management tentatively introduced a small distribution in 2017 and have increased the payout over the past two years.

A jump in earnings per share will, analysts believe, allow the company to pay a total dividend of 9.6p per share for the current financial year, giving a dividend yield of 4.9%.

On a cash basis, it looks to me as if this payout is here to stay. Last year, the business generated £281m in free cash from operating activities after deducting capital spending and other items, just about covering the total cost of the dividend for the year (£289m). 

So, that’s why I think you can trust Morrisons to give you a second income for many years to come. 

Paper profits 

The other FTSE 100 income stock I like the look of is Mondi. This paper and packing company has fallen out of favour with the market recently due to concerns about the possible oversupply of the global cardboard market. If there is too much supply, it will push down worldwide paper and pulp prices, which will have a knock-on effect on Mondi’s earnings.

Based on this speculation, City analysts are forecasting a 10% decline in the company’s earnings per share for 2019. However, even after factoring in this decline, shares in Mondi still look cheap. After recent declines, the stock is trading at a forward P/E of just 10.5, below its five-year average of around 15.

On top of this attractive valuation, the company’s dividend yield has spiked to 4.2%. As the payout is covered 2.3 times by earnings per share, I reckon earnings could fall by as much as 50% before the dividend comes under threat. 

As the company has a long-established track record of increasing its dividend to shareholders (the payout has grown on average by 15.6% per annum for the past five years), I reckon it’s highly likely the payout will only continue to expand over the next few years.

The post I’d buy these two FTSE 100 dividend growth stocks for a second income today appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no 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.