My top 3 FTSE 100 stocks for 2018

There's a good dozen or so top FTSE 100 shares I'd have trouble deciding between, including my favourite bank, Lloyds Banking Group, BP because oil is not going out of fashion, perhaps GlaxoSmithKline on the assumption that death is not going to be cured, and the ubiquitous Unilever.

But I'm picking three here which I think could have something special in store for 2018.

Top dividend

National Grid(LSE: NG) has suffered a share price fall over the course of 2017, and that makes me see what I think is a better bargain than usual. The year ended March 2017 brought in a dividend yield of 4.3%, and it's progressive too, with the company aiming to keep it growing ahead of inflation.

But since a peak of around 1,150p in May this year, the shares are now trading around 870p (at the time of writing), for a fall of 24%. And that pushes up the prospective dividend yield for the current year to 5.2%, with forecasts for the following year suggesting 5.4%.

The shares seem to have been pushed down by the two fears afflicting the big energy suppliers -- competition from smaller upstarts, and political sabre-rattling. But National Grid simply operates the transmission and distribution networks, and should largely be immune to energy pricing, price caps, and the like.

I think it's cheap.

Building strength

Despite a recovery from the dip triggered by 2016's Brexit vote, shares in the nation's housebuilders are still priced only around levels from two years ago. Some of that will be due to the slowing of the earnings growth spurt of the previous few years, but there will also be some fallout from fears of weakening property prices.

As a result, shares in Barratt Developments(LSE: BDEV) are trading on a forward P/E of under 10 for the year to June 2016 -- and that's with a forecast dividend yield of 6.9%. It includes a special dividend, but Barratt's performance looks strong enough to keep it going.

What if house prices fall? Well, there's been no sign of it in Barratt's updates so far, and it has two sides to it anyway -- while profit margins on houses currently being sold would fall, the cost of adding to the company's land bank would also drop.

I also don't see any end to the country's housing shortage in the next 20 years.

Insurance rerating?

The insurance sector still looks undervalued to me, tainted by banking shenanigans. I reckon most of the big firms look good, and I've chosen Aviva(LSE: AV), whose shares have pretty much echoed Barratt's over two years with a mid-2016 dip but no overall movement.

The company is in such good health now that at the end of November it revealed it was upping its earnings growth, cash and dividend targets -- after reporting a trebling of capital surplus over its four-year strategic and financial transformation.

The firm now expects "higher than mid-single digit percentage" earnings growth, and increased cash remittances that should enable it to repay £900m of debt -- and help with additional returns to investors.

Forecast dividend yields stand at 5.2% this year and 5.7% next, and with a "pay-out ratio target increased to 55-60% of operating EPS by 2020", I reckon buying now could lock in effective yields approaching 7% in three years time. P/E multiples of only 9.5 and 9 really make me think a rerating could happen in 2018.

The FTSE 100's best

All three of these would easily make it into my 2018 FTSE 100 cash cow portfolio, and I think they'll set you up nicely for long-term profits. If you want to hear of some more great ideas to accompany them, check out our special report, The Fool's 5 Shares to Retire On.

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Alan Oscroft owns shares of Aviva. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended BP and Lloyds Banking 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.

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