I’m searching for the best FTSE 100 dividend stocks to buy before this month’s Stocks and Shares ISA deadline. Should I add these popular income shares to my portfolio?
Diageo
Drinks giant Diageo (LSE:DGE) doesn’t offer the biggest dividend yields out there. For the current financial year the yield sits at 2.3%
This is some distance below the 3.7% average for FTSE 100 shares. Yet despite this, I still think it’s a top share to buy for long-term passive income. In fact, this is a blue-chip stock I already own in my ISA.
You see, Diageo has a brilliant record of dividend growth that few others can match. It’s raised the annual shareholder payout every year for more than 20 years. A rising dividend is important as it protects an investor’s wealth from the ravages of inflation.
It has a strong track record of growing profits which, in turn, gives it the means to consistently raise dividends. This is thanks in part to the defensive nature of its operations. Demand for alcoholic drinks remains broadly stable at all points of the economic cycle.
This robustness is also down to the popularity of drinks such as Captain Morgan rum, Guinness stout and Smirnoff vodka. The huge sums Diageo spends on marketing gives these products exceptional brand power which, in turn, makes them essential purchases for many shoppers.
Diageo is a share I hope to never sell. That’s even though rising teetotalism could hit earnings growth later down the line.
Tesco
Like Diageo, Tesco (LSE:TSCO) has formidable brand power. This is helped in large part by its highly popular Clubcard loyalty scheme. On top of this, the FTSE company also has the best online grocery operation in the business.
These are factors that could cement its position as Britain’s biggest retailer and deliver solid profits growth. But I’m not convinced. This is because of the pace at which competition among the supermarkets continues to grow.
Tesco’s market share continues to gradually erode as customers flock to cut-price chains Aldi and Lidl. Latest Kantar Worldpanel data showed its market share fall further in the 12 weeks to 19 March, to 26.9%. This was down more than half a percentage point from the end of 2022.
The pressure looks set to intensify as the German discounters rapidly expand their store estates too. Heavy investment by its rivals in their own online channels also poses a significant threat.
What’s more, Tesco’s pull with consumers could deteriorate significantly as it makes changes to Clubcard. From 14 June, shoppers will only be able to double the value of their accrued points when spending them with reward partners. At the moment, customers are able to triple the value of their points.
Clubcard has helped the business fight off the threat of the value chains better than its traditional rivals like Sainsbury’s. Changes here could damage the grocer’s brand with cash-strapped customers and hasten their exit to cheaper retailers.
Tesco’s 4.1% forward dividend yield is highly attractive. But I’d still rather buy other FTSE shares for income. I think the retailer could struggle to grow dividends over the next decade as competition increases.
