I’m looking for the greatest FTSE 100 dividend shares to buy in 2023. Could these popular picks bolster my passive income?
Power play
A sustained uplift in investor confidence could cause National Grid’s (LSE:NG.) share price to erode in 2023. Demand for safe-haven stocks like electricity companies could sink if investors rotate into riskier shares.
But I’d still buy the power transmission business in 2023 to boost my passive income. It’s raised the annual dividend for more than 20 years. This provides me with peace of mind even as the global economy cools.
You see, demand for National Grid’s services are essential regardless of broader economic conditions. The lights need to stay on whatever economic, political, or social crisis comes along. And the business has a monopoly on what it does.
This explains why City brokers expect annual earnings to continue growing solidly over the next couple of years, pulling dividends higher in the process.
Dividend yield
The FTSE index firm is tipped to pay dividends of 54.74p and 57.61p per share in the financial years to March 2023 and 2024 respectively. This is up from the 50.97p reward churned out last year.
This means that yields sit at a healthy 5.5% for this year and 5.8% for next year.
6.4% dividend yield
Lloyds (LSE:LLOY) shares are also wildly popular with investors seeking passive income. The firm’s leading position in retail banking provides the strength to pay above-average dividends year after year. So does its rock-solid balance sheet.
City analysts expect the bank to continue delivering big dividends too. Predicted payouts of 2.7p and 3p per share are anticipated for 2023 and 2024 respectively, up from an expected 2.4p last year. These forecasts yield 5.8% and 6.4%.
Yet I have reservations about adding Lloyds shares to my portfolio. Retail banking products are essential for everyday life. But the use of credit cards and loans might fall off sharply as the UK economy contracts.
Warning signs
Signs of massive cooling in the mortgages market is particularly concerning for Lloyds. As the country’s biggest home loan provider (market share: 19.5% as of 2021) its profits are highly sensitive to a strong residential property sector.
The number of loan approvals for home purchase slumped to 59,000 in November, latest Bank of England statistics show. This was down 10% month on month and the worst result since June 2020.
At the same time the number of residential property repossessions is booming. According to UK Finance, 700 homeowner-mortgaged properties and 390 buy-to-let-mortgaged properties were taken into possession in the third quarter. This was up 15% and 11% respectively from the second quarter.
Impairments soar
Lloyds stashed away more than £1bn to cover bad loans in the nine months to September. And this pushed pre-tax profits 13% lower year on year, to £5.2bn.
As an income investor I worry about more heavy loan impairments and how this (allied with weak revenues) could affect dividend forecasts over the next couple of years. So I’d rather buy other FTSE 100 dividend stocks for passive income.
