Dividend yields of up to 7.4%! Should I buy these FTSE 100 shares for income in 2023?

These UK blue-chip shares all offer dividend yields above the 3.7% FTSE 100 average. Are they too good for investors to ignore?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Photo of a man going through financial problems

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I’ve been looking for the best FTSE 100 stocks to boost my passive income this year. Should I buy the following income shares for their market-beating yields?

Taylor Wimpey

Housebuilder Taylor Wimpey’s (LSE:TW) dividend yield sits at an impressive 7.6%. And following recent encouraging news I’m considering adding to my holdings in the business.

This week Rightmove announced that average house prices rose at their fastest for three years in January. The news came as Bank of England chief Andrew Bailey told of a correction in the home loans market with rates falling across the board.

As I say this is positive news. However, I’ll be looking for more clues of a housing market rebound before buying more Taylor Wimpey shares. Rates are indeed falling, but demand for homes could still sink as Britain’s economy toils. At the same time housebuilder profits are in peril from elevated construction costs.

This is especially worrying given that Taylor Wimpey’s anticipated dividends for 2023 are covered just 1.3 times by expected earnings. It’s a reading that’s well below the accepted safety benchmark of 2 times. So if profits miss shareholder payouts could fall well short of forecasts.

Tesco

Would income investors like me be better off buying Tesco (LSE:TSCO) shares then? Its dividend yield sits at a lower 4.3% for the next two fiscal years. But in theory payout estimates appear far more robust.

Dividend coverage for the financial years to March 2023 and 2024 sits at 2 times. Fans of Tesco might also argue that food retailers like this are particularly safe income stocks too owing to their defensive operations.

The FTSE 100 supermarket looks in good shape to meet the City’s dividend forecasts. But I think its profits could sink sharply this year (and beyond). Market competition is rapidly increasing and margins are collapsing as the business slashes prices to match Aldi and Lidl.

At the same time Tesco’s cost base is rising. This week Aldi announced it was hiking wages for its warehouse staff by 20%. It followed J Sainsbury’s pledge earlier this month to raise pay to £11 per hour for customer-facing staff.

With supermarkets also battling high food and energy costs the outlook for profit margins is pretty grim. So I’d rather buy other dividend shares today.

BP

Some analysts are predicting another big year for oil prices. The boffins at UBS have for example predicted that crude prices will hit $110 per barrel in 2023, up from current levels around $85.

This in turn could prompt more big dividends from oil majors like BP (LSE:BP). Current broker forecasts leave the FTSE firm with a large 4.2% yield for 2023. Pleasingly this year’s predicted dividend is covered an excellent 4 times by projected earnings too.

But as a long-term investor I’m happy to leave BP shares on the shelf. This is because the company faces an uncertain future as the world switches from oil and gas to renewables and nuclear power.

On the plus side the business is investing heavily in green power. However, the vast majority of spending remains dedicated to fossil fuel projects. I think there are better stocks for me to buy for passive income.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has positions in Taylor Wimpey Plc. The Motley Fool UK has recommended J Sainsbury Plc and Tesco Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »