I’m searching for the best FTSE 100 dividend shares to buy for next year. Should I buy these popular ones to boost my passive income?
Persimmon
The Persimmon (LSE:PSN) share price has sunk in 2022. It’s down an eye-watering 58% from 1 January, a descent that has turbocharged dividend yields.
For next year, the housebuilder now carries a 9.3% yield. This is 2.5 times the FTSE index average of 3.7%.
I invested in Persimmon during the summer to take advantage of price weakness. But worsening conditions in the homes market since then has reduced some of my bullishness. Building society Halifax this week forecast that average home prices will drop 8% next year.
I still think the housebuilder will deliver excellent returns over the long term. Demand for new homes will grow strongly in the coming decades as the population expands. The National Housing Federation, for example, believes the UK needs to create 340,000 new properties by 2031.
But there could be better stocks to buy for passive income next year. City analysts think the builder will reduce an anticipated dividend of 193.3p per share for 2022 to 113.5p to 2023 as profits dive (a 40% earnings reduction is currently expected).
The problem is that next year’s predicted dividend is covered just 1.3 times by estimated earnings. Any reading below two times offers little margin for error.
Of course huge uncertainty lingers over the British housing market. And so profits and dividends could end up better than forecasts currently suggest. Ongoing government support and a competitive mortgage market could help support healthy homebuyer interest next year.
But right now I’m content to sit on the sidelines and invest in other dividend stocks.
Aviva
With cash to spare I’d be much happier buying Aviva (LSE:AV.) shares today.
Like housebuilders, life insurance businesses are also sensitive broader economic conditions. And profits at this FTSE 100 operator are in particular peril given the company’s narrow focus primarily on the UK and Ireland. The OECD thinks Britain will be the worst-performing of all major economies (except Russia) in 2023.
Yet City analysts still expect the annual dividend here to keep growing, supported by a projected 25% earnings rise. This is even though dividend cover also sits at just 1.6 times for the coming 12 months.
Consensus is for a 35.5p per share dividend next year, up from an anticipated 32.8p for 2022. This produces a fatty 7.9% dividend yield for 2023.
Forecasters are confident of dividend growth thanks to Aviva’s cash-rich balance sheet. Even if earnings disappoint the business should still be able to raise shareholder payouts. Indeed, the business has even suggested a share buyback programme could be launched in the coming weeks.
At the end of September, Aviva had a shareholder capital surplus of £8.8bn under Solvency II rules. This should provide the bedrock for more big dividends in 2023.
