I have been looking for FTSE 100 dividend shares to buy for my portfolio. I think the UK’s leading blue-chip index is stuffed full of high-quality income shares. Some of these are currently selling at discounted valuations considering their potential.
Here are my two favourite income stocks I would acquire for my portfolio right now.
Dividend shares to buy for growth
The first company on my list is wealth management group Schroders (LSE: SDRC). This is one of the City’s most storied and established wealth managers. And now the organisation is trying to take on the world.
The FTSE 100 corporation is trying to expand across international markets with a combination of acquisitions and organic growth. The company’s well-known brand and its strong balance sheet are both helping to support this strategy.
Assets under management have expanded from around £300bn in 2016 to more than £717bn today. I think this growth is the strongest indicator of the company’s expansion potential.
Unfortunately, there is no guarantee this group will continue. Competition for client assets is incredibly competitive in the wealth management sector. Additional regulations could also hit the company’s profit margins. And as assets managed by the enterprise have expanded, so have management fees.
But overall earnings per share have risen from 179p in 2016 to 226p today. And as income has expanded, so has the firm’s dividend. The per share payout has grown at around 7% per annum since 2016. At the time of writing, the stock supports a dividend yield of 5.5%.
As the business expands, I think the payout will grow further. Considering this potential, I would buy the FTSE 100 company for my portfolio.
FTSE 100 champion
The second blue-chip dividend stock I would buy is Segro (LSE: SGRO). Some investors might avoid this company because, at first glance, it does not look as if it is a dividend champion. Indeed, at the time of writing, the shares support a dividend yield of 1.9%.
However, what I am interested in is the firm’s growth potential. Segro owns and develops warehouse facilities, which retailers and fulfilment companies lease. The market for these assets is currently exploding as online retail grabs an ever-larger share of the overall retail market.
As one of the largest operators in the sector in the UK, the enterprise has the scale and resources to capitalise on this market growth. But it is not the only business chasing this market. Money is flooding into constructing warehouse facilities across the country. If this leads to a situation where the market is oversupplied, Segro’s outlook could begin to deteriorate. This is the most considerable risk to the company’s growth.
I would buy the FTSE 100 stock for my portfolio today despite this risk. As its portfolio has grown, management has increased the dividend rapidly. It has risen from 13p in 2016 to 20p today. Although past performance should never be used as a guide to future potential, considering the company’s growth potential, I believe it will remain a dividend growth champion.
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Rupert Hargreaves has no position in any of the shares mentioned. 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.
