When I am looking for dividend shares to buy, I tend to overlook the FTSE 100. I think there are usually better bargains to be found outside the UK’s blue-chip index.
However, there are a couple of large-cap 5%-yielding companies I would buy for my portfolio right now, considering their income and growth potential.
Dividend shares to buy
One of the top dividend stocks in the FTSE 100, in my view, is National Grid (LSE: NG). The group operates most of the electric network in England, which gives it a very defensive nature. This also means the business will be fundamental in driving the UK’s energy transition.
National Grid’s bottom line is currently benefiting from higher energy prices in the UK and the opening of its North Sea Link to Norway, which cost £620m. Thanks to these developments, the company’s profit before tax rose 86% in the first half of its financial year.
Based on this growth, management believes the company’s earnings per share will grow 5%-7% for the full year. More importantly, the organisation will be able to use this windfall to pursue its growth initiatives. These include expanding its presence in North America and helping the UK reach its climate ambitions.
The company aims to invest £30bn-£35bn over the next five years in the UK and US.
Considering this capital spend, I think the FTSE 100 company has excellent potential as an income and growth investment. The shares also offer a dividend yield of 5.2% at present.
Some significant challenges it could face going forward. These include regulatory constraints, which may limit the amount of profit the company can generate on its capital spending, and volatile energy prices.
FTSE 100 income
Alongside National Grid, I would also acquire abrdn plc (LSE: ABDN). With a current dividend yield of around 5.4%, the financial services group is an incredibly attractive income opportunity.
The organisation is currently in the middle of a transition. It is moving away from its legacy business as a retirement savings and life insurance business. Instead, management is focusing on expanding the company’s presence in asset management.
Asset management can be more profitable than life insurance, and there are fewer regulatory and financial constraints on the company.
Rumours suggest the business is in merger discussions with Interactive Investor, the online stockbroker. This gives us some insight into the direction management is taking the group.
Abrdn is trying to use its financial clout to grab market share in the wealth management and online investing business. Considering its size, I think the group is well-placed to capture a significant percentage of the market.
Like all financial services companies, abrdn is subject to strict regulations. These could weigh on growth as we advance. There may also be competition concerns if the group becomes too powerful in a particular sector. These are probably the biggest risks and challenges hanging over the stock right now.
Rupert Hargreaves has no position in 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.