I’m searching for the best high-dividend stocks to buy next month. Should I load up on these FTSE 100 income shares?
BP
I have huge reservations over buying oil producers like BP (LSE: BP). The world is transitioning rapidly from fossil fuels to renewables and alternative energies. The world’s majors have a long way to go as part of this transition to replace their oil and gas revenues.
But then the company could potentially deliver explosive profits growth in the short-to-medium term, as Shell’s third-quarter update shows. Adjusted earnings doubled year on year to $9.5bn thanks to higher crude prices.
As a result, Shell announced plans for a $4bn share buyback programme. It also hiked the quarter three dividend to 25 US cents per share.
The trouble for BP and Shell, however, is that this outstanding profits growth has amplified calls for a windfall tax. This could end up costing the FTSE 100 firms billions of pounds. The UK government has said that all options remain on the table as it aims to rebuild public finances.
Furthermore, it’s not certain that crude oil prices will remain close to $100 a barrel. The OPEC+ group’s decision to cut production has helped black gold values remain at current elevated levels. But the cooling global economy means that a slump in oil demand might not be far away.
BP’s slight forward price-to-earnings (P/E) ratio reflects this uncertain outlook. For 2022 it carries a multiple of just 3.9 times.
So I’m happy to ignore the oil stock and its 4.3% dividend yield for now.
The Berkeley Group
Like BP, The Berkeley Group (LSE: BKG) has a dividend yield that beats the 4% FTSE 100 average.
At 4.5% the company’s reading is a clear distance above the British blue chip average. On top of this, the housebuilder trades on a forward P/E ratio of just 8.7 times. It thus provides great all-round value on paper.
The housing sector outlook over the long term remains robust in my opinion. However, uncertainty over Berkeley’s profitability (and thus dividend prospects) in the more immediate future means I’m not investing for the time being.
Promisingly for Berkeley, demand for city homes is increased as people flock back following Covid-19 lockdowns. According to Halifax, average home values in UK cities rose 9.2% between January and September.
This is good news for Berkeley which is focused on London and the South East. The problem, however, is that a broad slump in home values is possible as interest rates soar and the domestic economy struggles.
At the same time costs for the homebuilders looks set to keep growing. Shortages of raw materials and increasing wages are all adding pressure to these companies’ bottom lines.
I already own a raft of FTSE 100 housebuilders in my own portfolio. But until the demand outlook becomes clearer I’ll be looking to buy other UK shares to boost my dividend income.
