Two FTSE 100 dividend shares I'd buy and hold forever

With the FTSE 100 having recovered to reach close to its all-time high in the last month, it may now be more challenging to find good value income shares.

Certainly, investors may now be less positive than they once were about dividend stocks, due to a fall in inflation. But with the wider index rising and inflation still relatively high, they could offer strong total return potential. As such, finding income shares with wide margins of safety could still prove challenging.

Despite this, it is still possible to find such shares in the FTSE 100. Here are two prime examples which could be worth a closer look today.

Impressive performance

Tuesday saw corrugated and plastic packaging provider DS Smith(LSE: SMDS) releasing a pre-close trading statement for the year to 30 April. The company has performed in line with expectations, with trading conditions and operational performance being as per recent guidance.

Encouragingly, volume growth has been robust, with positive performance from multi-national customers, sustainable solutions and the e-commerce sector helping to accelerate growth. There has also been a recovery of paper prices, while volume growth in the US has been positive. The integration of Interstate is moving along as expected, with synergies now due to reach $35m by the end of the third year of ownership.

Looking ahead, DS Smith is forecast to deliver a rise in earnings of 12% in the new financial year. This puts it on a price-to-earnings growth (PEG) ratio of just 1.3, which suggests that it could deliver strong capital growth over the medium term. With dividends being covered 2.1 times by profit, the stock could also become an even more appealing income option. A dividend yield of 3.5% could rise at a much faster pace than inflation over the coming years.

Growth potential

Also offering a potent mix of growth and income potential is housebuilder Persimmon(LSE: PSN). The company is forecast to grow its bottom line by 3% per annum over the next two years. While that is a slower pace than has been recorded by the business in recent years, it trades on a price-to-earnings (P/E) ratio of just 11 at the present time. This suggests that if profitability improves at a faster pace over the medium term, it could be worthy of a significantly higher rating.

With favourable conditions expected to remain in play for housebuilders over the next few years, notably with regard to interest rate levels, Persimmon could deliver rising profitability. This should mean that its capital return plan is very affordable, with it due to deliver an annualised dividend yield of over 7% per annum during the next two years.

As such, and while the UK economy may be experiencing an uncertain period, the stock appears to offer a strong risk/reward ratio. For long-term investors, it could be one of the more enticing stocks in the FTSE 100 at the present time.

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Peter Stephens owns shares of Persimmon. 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.

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