It’s a great time to be a dividend investor at the moment as, here in the UK, we’re currently experiencing a dividend bonanza. Indeed, according to research from investment services provider AJ Bell, dividends from FTSE 100 companies are set to reach a record high £94bn in 2019. That’s certainly a lot of cash paid out to investors.
Want a slice of the action? No problems – it’s super easy to get involved. Here’s a look at two FTSE 100 dividend stocks that are cash cows.
Legal & General Group
Let’s start with insurance and investment management specialist Legal & General (LSE: LGEN). Right now, it offers a whopping yield of 7.2%, based on analysts’ forecasts for the FY2018 dividend payout.
There are a number of reasons I like Legal & General as a dividend stock, aside from its high yield. For starters, there’s the stock’s dividend growth track record. If the company increases its dividend this year, as predicted, that will mark nine consecutive dividend increases, which is a good achievement. Second, the stock’s dividend coverage looks solid, at a projected 1.8 times for this year. This suggests the dividend is sustainable. Third, the company generates significant cash flow, which is another plus from a dividend-investing perspective. Finally, I also like the fact that the group has a diversified business model. For example, not only is it a significant player in UK insurance, but it’s also a key player in the exchange-traded fund (ETF) space.
Add in the fact that the stock trades on a P/E of just 7.6, and I see considerable appeal in buying LGEN for its big dividends right now.
Schroders (non-voting shares)
Another FTSE 100 cash cow that I believe warrants attention at the moment is investment manager Schroders(LSE: SDRC). At present, its non-voting shares offer a yield of a high 5.6%, according to analysts’ dividend forecasts.
Schroders is another stock with an excellent dividend track record. Impressively, the company didn’t cut its dividend during the Global Financial Crisis (rare for a financial services company) and the group has now either held its dividend steady, or increased it, for 19 consecutive years. And, like Legal & General, dividend coverage is solid, at a forecast 2.0 times for FY2018, meaning the current payout looks sustainable in the near term.
Of course, as a company whose profits are largely linked to the stock market, there are risks to the investment case here. If global stocks markets were to keep falling, Schroders’ share price could experience weakness. Furthermore, the rise in popularity of ‘passive’ funds (ETFs) is another potential threat, as Schroders is an ‘active’ investment management. Yet the shares are already down 25% from their 2018 high and, at current levels, the stock’s P/E ratio is an undemanding 9.2. At that valuation, with a 5.6% yield on offer, I see long-term appeal.
Do you want to retire early and give up the rat race to enjoy the rest of your life? Of course you do, and to help you accomplish this goal, the Motley Fool has put together this free report titled "The Foolish Guide To Financial Independence", which is packed full of wealth-creating tips as well as ideas for your money.
The report is entirely free and available for download today, so if you're interested in exiting the rat race and achieving financial independence, click here to download the report. What have you got to lose?
Edward Sheldon owns shares in Legal & General Group and Schroders (non-voting). The Motley Fool UK has recommended Schroders (Non-Voting). 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.