If you have £1,000 to invest today and don’t know where to start, there are plenty of options in the FTSE 100. However, with the coronavirus outbreak showing no signs of slowing down anytime soon, investors need to be careful.
With that in mind, here are two FTSE 100 dividend stocks I believe are attractive investments in the current environment.
FTSE 100 income
Bunzl (LSE: BNZL) is one of the FTSE 100’s most successful businesses. For the past few decades, this company has chalked up an excellent record of dividend and earnings growth. Management has been pursuing a conservative acquisition strategy, which has helped the company consolidate the highly fragmented distribution business.
By following this buy and build strategy, the FTSE 100 champion has been able to achieve unrivalled economies of scale. Thanks to this combination of acquisitions and improving efficiency, net profit has grown at a compound annual rate of 11% over the past six years.
The company’s dividend to investors has also grown at 8% per annum over the same time frame.
Bunzl won’t escape the coronavirus outbreak unscathed. Nevertheless, it’s better positioned than many of its peers to weather the storm. Indeed, while the business will almost certainly suffer a significant decline in its foodservice and leisure business, rising demand for cleaning, hygiene and healthcare supplies should offset some of the impact.
This suggests the company should be able to maintain its dividend. Right now, investors can buy the stock for just 13.3 times forward earnings. That’s the lowest valuation in five years. The FTSE 100 dividend growth champion also supports a dividend yield of 3.2%.
Defensive business
Like Bunzl, FTSE 100 income champion Smiths Group’s (LSE: SMIN) revenue diversification should help the business weather this storm.
Smiths is one of the world’s largest and most respected manufacturers of security and engineering equipment. Demand for these products will drop in the near term, but it’s likely to increase over the long run.
Smiths Group’s reputation is vital here. These are not the sort of products customers want to be cutting costs on. They’re prepared to pay for quality, and that’s where the group has the edge.
What’s more, the business is a crucial supplier of medical devices, including ventilators. Demand for these is booming, which should provide the company with enough cash flow to keep the business ticking over until confidence restores.
Unfortunately, despite this diversification, the coronavirus outbreak is having a significant impact on the FTSE 100 business. In its latest trading update, the company informed investors that demand for most of its products has slumped. With this being the case, management has taken the prudent action to postpone the group’s interim dividend.
This is disappointing. But by saving cash, management should be able to reinstate the payout later in the year. And when the payout does return, investors can look forward to a 3.8% dividend yield. That’s if the distribution is restated at historical levels, which seems likely at this stage.
