3 FTSE 100 dividend stocks I’d buy for 2019

Various denominations of notes in a pile

As we head into Christmas and the New Year, my investing thoughts are turning to 2019. There’s still a lot of political uncertainty about Brexit. There are also economic risks further afield.

Today, I want to look at three high-yield dividend stocks which I expect to continue providing a reliable income in 2019 and beyond.

A cash machine

Even after the recent sell off, there aren’t that many FTSE 100 stocks offering a 7.3% dividend yield, generously covered by free cash flow. But that’s the deal on the table for investors in British American Tobacco (LSE: BATS).

The BAT share price has fallen by 45% so far this year, as investors have raised concerns about the group’s debt load and growth prospects. A recent proposal to ban menthol cigarettes in the US — a major market for the firm — has increased the stock’s decline.

However, a ban could take years to agree and Big Tobacco has weathered many such storms before. A recent trading update confirmed that full-year profit guidance was unchanged and that debt reduction plans are on track.

BAT stock currently trades on just 9.3 times 2018 forecast earnings, with a 7.3% dividend yield. I’d rate the shares as a value buy at this level.

Safer than houses

Whatever the outcome of Brexit, I’m pretty sure that electricity and gas will continue to flow through the networks operated by National Grid (LSE: NG) and into our homes, offices and factories.

The market seems confident, too. National Grid’s share price has risen by about 4% so far this year, leaving it comfortably ahead of the FTSE 100 index.

It’s easy to forget that around one third of this group’s profits now come from its US operations, so earnings and dividends aren’t completely dependent on the UK market.

However, what I like most about this business is that so much of its income comes from charges for using its transmission networks. There’s no alternative to this in most of the UK, so long-term income visibility should be excellent.

At about 840p, the stock offers a forecast dividend yield of 5.6%. I see this as a low-risk income buy.

Want a bit more excitement?

My third pick is a little different. FTSE 100 IT group Micro Focus International (LSE: MCRO) specialises in running and maintaining legacy IT systems for major clients. Until this year, it’s been a strong performer, with high margins and good cash generation.

However, the firm ran into some problems in March as a result of its acquisition of the HP Enterprise Software business in 2017. The profit warning which followed caused the shares to fall 50% in less than a week.

I thought the sell-off was overdone and called the shares as a buy in July and September. The share price has risen by another 10% since then, but still looks affordable to me on just 10 times 2018 forecast earnings. There’s also a tempting 5.5% dividend yield.

Recent management reports suggest that a renewed focus on implementing the firm’s proven operating model is delivering results. I think the shares could deliver attractive gains from their current level.

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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.

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