2 FTSE 100 stocks I’d buy right now

FTSE 100 (London Stock Exchange Share Index) on Gold Coin Stacks Isolated on White

The FTSE 100 is often derided as old and stuffy and lacking in exciting techy stocks. That might be true, but when I’m looking for dividend stocks, then the UK’s main index is a great hunting ground. BAE Systems (LSE:BA) and JD Sports Fashion (LSE:JD) are two FTSE 100 stocks that I would buy now in a Stocks and Shares ISA.

FTSE 100 defensive dividend

BAE looks cheap to me, trading at 12 times earnings. The FTSE 100 average price-to-earnings ratio is just over 17. Now cheap does not mean I would buy automatically. There might be good reasons for something being cheap. For example, the stock in question might be on the cusp of bankruptcy. This is not the case with BAE, as far as I can tell. I would buy it for its forecasted above-4% dividend yield for 2021 and 2022. I think that yield is attractive but also realistic.

BAE is an experienced player and has formed strong relationships within an industry that is very difficult to break into. It generates solid operating margins and returns on capital compared to its peers. Defence budgets are increasing in the UK and Japan and indeed globally. The new US, UK, and Australia defence partnership will probably benefit BAE’s already full order book.

But, I need to be aware that BAE builds to long-term contracts in a heavily regulated industry. Its assets are specialized and often one-offs. That means it could struggle to sell them to anyone but the original buyer, making cash hard to come by in a pinch. The dividend would probably be one of the first things to be trimmed if trouble were on the horizon.

FTSE 100 in (sports) fashion

JD is the UK’s largest sportswear retailer. Currently, JD shares are trading at 1,030p, which is about 10% below the 1,151p record high reached after blockbuster half-year trading results were published on 14 September 2021. After watching the JD share price rise 252% from the bottom of the 2020 coronavirus market crash, now might be the time for me to buy JD shares.

Although sales growth did slow between 2020 and 2021, JD increased its total revenue from 2019 to 2021. The performance over the pandemic, when stores were shut for months, indicates that JD’s online channel is healthy and could respond to increased demand. This bodes well for the future as the shift to online shopping is unlikely to reverse. Sports Direct, a competitor, will lose visibility after the Newcastle United takeover, which is a bonus for JD.

JD sports stock split

Analysts expect JD’s revenues to keep growing, which should push earnings and dividends higher over time if margins hold up. Now, JD did suspend its dividend in 2020, and as yet, has not restated it. There have been hints that the full-year 2022 dividend might be significant.

However, investors might lose patience if the dividend is not restarted soon or if dividends do not meet expectations. Also, on 1 November 2021, there will be a share split of JD stock. Shareholders will receive five shares for everyone that they own, which will cut the printed JD share price by a fifth. This should not affect the value of the JD shares to investors — they will own five shares at 200p, for example, compared to one share at 1,000p previously — but there is no way to predict how investors will react to the change.

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James J. McCombie does not own any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.