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In my view, holding FTSE 100 shares is the best way to source a passive income over the long haul. With this in mind, here are two top FTSE 100 dividend stocks I’ve bought for my own portfolio.
The high dividend yielder
Aviva (LSE:AV.) was one of many FTSE 100 stocks that reduced dividends during the height of the pandemic. But cash rewards have grown back strongly since then, resulting in a yearly average growth rate of 6.9% since 2015.
City analysts expect dividends here to keep growing at this sort of pace over the medium term, too. And so the company’s forward dividend yield is a healthy 5.7%.
I’m not surprised by these buoyant predictions. Trading conditions may remain tough as the UK economy struggles, which could potentially harm the share price. But I’m confident such pressures are unlikely to hurt Aviva’s progressive dividend policy — this reflects the depth of Aviva’s balance sheet.
As of June, the Solvency II capital ratio here was 206%, which is more than double the regulatory requirement. In fact the ratio grew another 3% year on year. By focusing on capital-light investments, the firm should continue generating strong cash flows, in my view, supporting future dividend growth.
I feel Aviva has considerable growth opportunities as demographic changes drive demand for wealth, retirement and protection products. This wide footprint also provides diversification benefits, reducing risk and supporting dividend resilience. I expect the business to be a strong passive income stock for decades to come.
A top dividend grower
Equipment rental giant Ashtead Group (LSE:AHT) doesn’t have the enormous dividend yields of Aviva. Its own forward yield is currently 1.5%, far below the broader FTSE 100’s average of 3.3%.
But what it does have is a stunning record of unbroken annual dividend growth dating back to the mid-2000s. Cash payouts have risen at a fair lick in that time too — over the last decade, dividends have swelled at an average annual rate of 19.2%.
This reflects Ashtead’s excellent cash generation, and has helped to protect investors’ returns from the eroding power of inflation.
Past performance isn’t a guarantee of future returns. But I believe (like City brokers) that the rental equipment supplier can keep delivering. Its net-debt-to-EBITDA ratio remains respectable at 1.6 times, below its long-term range of 1 to 2 times. This gives it scope to keep investing for growth (including making acquisitions) without sacrificing shareholder rewards.
There are still dangers here as the key US economy splutters. But some green shoots of recovery are providing encouragement, like US home starts hitting five-month highs in July.
Ashtead has considerable opportunities to exploit over the medium-to-long term. These range from increased onshoring, boosted by the ongoing ‘America First’ policy in the US, to a swathe of huge infrastructure projects and data centre ramp-ups. With equipment users increasingly favouring rental over ownership, the Footsie firm’s well placed to capitalise.
