Let’s face it, with just seven weeks to go before the end of the year, time is flying by. Importantly, I want to start thinking about where I can invest spare cash that I have now, with one eye on 2023. With inflation likely to stay high for much of next year, I want to squeeze out income via FTSE 100 shares that pay out dividends. Here are some ideas I’m thinking about.
Stocks with income potential
When thinking ahead to 2023, it’s not just about what the current dividend yield of the stock is. I want to buy a company that has the capacity and potential to increase the dividend per share payment over the next year and beyond.
What this means is that even if the current yield isn’t exceptionally high, I still stand to receive chunky dividends in the future. A good example of this is Lloyds Banking Group. The current dividend yield is 4.98%. This is above average already, but I think it could go higher.
During the pandemic, the bank was forced to halt dividend payments, but it’s now scaling it back up again. The interim dividend has increased from 0.67p to 0.8p over the last year, and the final dividend has risen from 0.57p to 1.33p. There’s still plenty of room for this to increase before it reaches pre-pandemic levels. Given the profitability of the bank thanks to higher interest rates, I think this should happen next year.
A similar story applies to some other UK banking stocks, including NatWest Group. This is another stock I’d consider buying.
Picking an existing FTSE 100 dividend share
Another way I can invest my money is by picking existing stocks that have a solid track record. If the company has been paying out income in a sustainable way for several years to shareholders, why shouldn’t that continue for next year?
A stock I like is National Grid. The current dividend yield is 5.27%, well above the 3.89% FTSE 100 average. Further, the dividend yield over the past five years has ranged from around 4% to 6%.
It’s a company that I think is well positioned for the future. This is because of its five-year £30bn-£35bn energy infrastructure investment programme. The business said “over 70% of our five-year investment is aligned to EU taxonomy principles making us one of the FTSE’s largest investors in the delivery of net zero”.
Even though this could drain valuable cash flow, I don’t see the investment as a negative. The company says the financial outlook for the five years remains unchanged, even with that investment.
I’ve got all three stocks on my watchlist at the moment. I think the resounding answer to my question in the title is yes, I should (and most likely will) buy all the shares mentioned with spare cash between now and the end of the year.
