I’m on the hunt for FTSE 100 dividend shares that I can pop into my portfolio and forget about for years.
To meet that criteria, they need to be strong, solid companies in essential sectors with well-covered dividends and healthy growth prospects.
Spirits giant Diageo (LSE: DGE) meets all of that. I held it a decade ago, before exiting with a 75% profit. Truth be told, I wish I’d never sold it.
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Buy and hold for income and growth
Diageo has a seemingly endless array of global drinks brands, giving it exposure to both the mass market and fast-growing premium drinks sector. It operates in regions many drinkers never consider, such as East Africa, through its wholly-owned indirect subsidiary Diageo Kenya. This gives it incredible geographical diversification.
Diageo already has superb defensive capabilities, as people need a drink in a recession. In the last six months of 2022, net sales rose 18.4% to £9.4bn, with growth across all regions. Operating profits jumped 15% to £3.2bn.
Despite this, Diageo’s share price actually fell 6% over the last year. However, it is up 43% over five years and 85% over 10 years. I was wrong to sell it then, clearly, but won’t make that mistake next time.
The share price looks relatively expensive trading at 23.1 times earnings, but then it is always relatively expensive. It’s a premium stock. The yield is low at 2.2%, but management is progressive, steadily increasing the payout from 65.3p to 76.18p per share over the last five years. It’s covered twice by earnings.
My second buy-and-hold FTSE 100 dividend stock is power generator SSE (LSE: SSE). In contrast to say, BP and Shell, this firm has confidently moved into renewables, helping it take the lead in the energy transition, rather than trailing.
A well-covered dividend
Its target of delivering a “cheaper, cleaner and more secure homegrown energy system” requires a heap of capital investment. Last year it faced the threat of an energy windfall tax too. Despite that, the SSE share price is up 12.1% over 12 months, while longer-term investors will be pleased with growth of 44.05% over five years.
SSE now has more clarity over the windfall tax, which is expected to cost it £568m, and may be reduced further as energy companies campaign for capital expenditure offsets. Last month, it upgraded earnings-per-share expectations from 120p to 150p, as higher gas prices more than offset falling renewables output.
Wind farm output has been hit by unseasonably calm, dry weather, but it feels wetter now. SSE’s Shagreen offshore farm in the North Sea has suffered delays but should be completed by the summer. The real appeal for a long-term investor like me is the dividend, which is now forecast to yield 5.5% with solid cover of 1.5.
I got used to SSE trading at around 25 times earnings so today it looks cheap at 18.2 times, which makes now an attractive entry point. I’ll buy both these stocks when I have some cash to spare, with no plan to sell either of them.
