I’m searching the FTSE 100 for the best growth and dividend stocks to buy today. And predictions of an explosive profits rebound at Rolls-Royce (LSE: RR) through to 2023 has caught my attention recently.
The Rolls-Royce share price has soared 20% in the past month as market optimism has picked up. The engine builder clearly has strong momentum that could sweep it out of ‘penny stock’ territory before long.
There are several reasons why I’m tempted to buy Rolls-Royce shares today. Its growing role in the field of nuclear power could produce huge rewards as demand for low-carbon electricity takes off. It is also developing its UltraFan efficient plane engine, and introducing engines that run on sustainable fuels at its Power Systems division, to boost its opportunities in the rapidly growing green economy.
I also like Rolls-Royce’s top-tier supplier status to the world’s biggest planebuilders Airbus and Boeing. I think this could lead to significant engine sales and servicing revenues over the long term as the global aviation industry grows.
Why I worry for Rolls-Royce
However, I’m not tempted to buy Rolls-Royce shares just yet. I still have major concerns over company profits in the near term and beyond. This is because of:
- Shortages of airport and airline staff. These are prompting mass flight cancellations that are hitting airline profits and engine flying hours. The problem threatens to stretch long into the summer, and potentially beyond, too.
- Rising travel costs. Wizz Air was this week the latest firm to warn of increased ticket prices as inflation rises. This has the potential to derail the aviation industry recovery as consumers are increasingly scaling back spending.
- A resurgence in Covid-19 cases. Infection rates in the US have spiked again to remind us that the pandemic isn’t yet over. Cases are back above 100,000 a day and a fresh global spike could ground the aviation industry once more.
- A huge debt pile. The threat of a stalling aviation sector is particularly dangerous given Rolls-Royce’s £5.2bn net debt. This huge financial millstone also threatens to derail the company’s ambitious growth plans.
2 FTSE 100 dividend stocks I’d buy
On balance, the risks facing Rolls-Royce and its share price are too much for me to swallow. Therefore I’d rather buy other UK shares today. In fact, there are many FTSE 100 dividend-paying stocks I’m considering buying over Rolls-Royce.
For example I’d much rather buy Persimmon shares for my portfolio. Rising interest rates pose a threat to the 10.8%-yielding housebuilder. But I’m confident that profits here should continue rising strongly amid disappointing home construction rates. I believe demand should continue outstripping supply and pushing property prices through the roof.
I’d also pick ITV shares and its 7.4% dividend yield over Rolls-Royce. Revenues at the broadcaster could fall sharply if the advertising industry takes a dive. But I think the FTSE 100 firm could deliver excellent long-term returns as it boosts investment in programme production and its streaming services.
