The FTSE 100 is home to several high-quality dividend shares. That could be because the UK’s leading stock index holds dozens of mature businesses. More often than not, these tend to distribute larger dividends to shareholders.
Growing dividends
One of best dividend shares around today is Legal & General Group (LSE:LGEN), in my opinion. Its 8.3% dividend yield is one of the highest in the index.
But what sets it apart even more is how it has managed to grow its payments consistently over time. A decade ago, this financial services company paid 9.3p in dividends. Note that last year, it paid 19.4p.
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I calculate that if I had bought these dividend shares 10 years ago, my investment would have doubled in value.
Why I’d buy L&G
Bear in mind that dividends are typically paid from earnings, so it’s important to look at current and future profits.
This business is well-diversified across many business areas. These include pensions, investments and insurance.
It’s also profitable and has strong long-term drivers that could maintain profits over time. For instance, an ageing population bodes well for this retirement business.
In the near term, the economy is still fragile. And as a financial services firm, its fortunes are linked to equity and credit markets.
That said, this dividend share could prove to be a long-term winner, in my opinion.
Down 35% in a year
My next dividend share for August is UK housebuilder Persimmon (LSE:PSN). It’s currently the worst performing FTSE 100 share over the past year. Down 35%, this former stock market darling is trading at prices seen over a decade ago.
The biggest reason for this is the Bank of England’s move to significantly hike interest rates to try to combat soaring inflation. Higher mortgage costs have put pressure on housing related shares.
So why should I buy this laggard? Well, billionaire investor Warren Buffett famously said: “Be fearful when others are greedy and greedy when others are fearful”.
Persimmon’s sinking share price implies much fear, in my opinion. But I’d argue that many of the concerns are factored into the price.
Solid dividend shares
Fundamentally, Persimmon is as solid as bricks. It owns high-quality land, and a rock-solid balance sheet.
In contrast to the last major housing downturn in 2008, housebuilders including Persimmon hold much more cash. This provides a buffer and flexibility to purchase cheap land when opportunities arise.
Dividend payments are lower than they have been, but it still offers a 5% yield. That’s more than the FTSE 100 average of 3.6%.
The long-term housing environment in the UK remains favourable to Persimmon. A chronic shortage of property is likely to remain for some time.
And as it sells new homes that are typically 20% lower than the national average, it offers good value to cash-strapped homebuyers.
Final thoughts
Uncertainty remains, and interest rates could still rise further in the near-term. Tightening affordability could still impact Persimmon’s sales. House price gains are also likely to remain limited.
That said, the stock market is forward looking. And I try to get ahead of the pack. That’s why with spare funds in my Stocks and Shares ISA, I’ll be buying these dividend shares soon.
