2 FTSE 100 dividend stocks to consider buying before it's too late

Updated: 
dividend

Tobacco company Imperial Brands (LSE: IMB) is one of the FTSE 100's most reliable dividend growth stocks. Supported by its strong brand portfolio and the non-cyclical nature of cigarette demand, the company has an excellent track record of delivering steady dividend growth.

Annual dividends per share have more than doubled since 2009, with a compound annual growth rate (CAGR) in dividend payments of 13.2% over the 7-year period. Further growth at a similar double-digit pace is forecast over the next few years, with the company promising to deliver dividend growth of at least 10% over the medium term. Shares in Imperial Brands currently yield 4.1% and, given expectations of double-digit dividend growth, its shares could yield as much as 4.9% by 2018.

The stock has come under pressure in recent months, after the company surprised investors with an additional spending of £750m for a new phase of cost optimisation, to reduce complexity and drive operational efficiencies. But I believe this could be an opportunity to buy the stock on short-term weakness.

Underlying fundamentals remain attractive, with Imperial Brands forecast to post earnings growth of 8% and 5% in 2017 and 2018, respectively. Valuations are reasonable too, with the stock trading at just 13.8 times forward earnings.

Takeover speculation

What's more, speculation on potential takeover bids is never too far away from Imperial Brands. In the midst of fierce competition, the tobacco industry is consolidating, and further deals may follow British American Tobacco's acquisition of Reynolds American.

City broker Exane BNP Paribas reckons Imperial Brands only has a 30% likelihood of staying independent by the end of 2018. It has tipped Japan Tobacco as the most likely buyer, as a deal with Imperial Brands would give Japan Tobacco access to the attractive US market and provide it with the much needed clout to compete against its larger rivals. Exane also raised its price target on Imperial from 4,000p to 4,650p.

Buy on the dip?

Advertising company WPP(LSE: WPP) may be another stock to buy on the dip. The stock is down 11.6% over the past week, as the company warned that growth would slow this year.

Organic net sales growth for 2017 is expected to fall to around 2%, down from 3.1% last year, due to the slow global growth environment and weak business investment. Trading conditions in the UK market is proving to be particularly difficult following the Brexit vote of last June, with like-for-like revenues down 2.6% in the last quarter of 2016.

But despite the impact of slowing growth in the short-term, I reckon, like many City analysts, that the business has what it takes to create long-term shareholder value. Supported by its expansion into fast-growing markets and digital media, underlying earnings is forecast to grow 12% and 7% in 2017 and 2018, respectively.

Moreover, WPP is highly cash generative, with the company producing more than £1.5bn in free cash flow last year. The company increased its dividend by 26.7% this year, which implies that the stock currently trades at a yield of 3.3%. And with the dividend payout ratio currently at around 50%, there's plenty of scope for further dividend growth down the line.

More dividend picks?

If you're looking for more reliable dividend stocks, The Motley Fool has a free special report that's aligned with your investing goals: The Fool's Five Shares To Retire On.

These five large-cap shares have been selected for their combination of income and growth prospects. They generate stable cash flows from their dominant market positions and broad global exposure.

It's completely free and there's no further obligation. Get your copy now.

Jack Tang has no position in any shares mentioned. The Motley Fool UK has recommended Imperial Brands. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.