These FTSE 100 income shares carry dividend yields above the 3.8% index average. So which should I buy for my UK shares portfolio in June?
J Sainsbury
As the cost-of-living crisis endures, spending — even on essentials — is being affected. The pressure looks set to persist, too — food price inflation remains anchored around 45-year highs above 19%.
In this climate, established supermarkets like Sainsbury’s (LSE:SBRY) have a fight on their hands not to haemorrhage customers to budget chains Aldi and Lidl. The trouble is that traditional operators are sacrificing margins as a result.
Sainsbury’s retail underlying operating margin fell to 2.99% in the year to March, down 41 basis points. And so pre-tax profit dropped 62% year on year to £327m. With the business launching a new Nectar Prices scheme to attract customers, the strain on margins will persist.
At the same time the German cut price chains are aggressively expanding to win customers from the FTSE 100 business. Aldi’s store opening programme drove its market share above 10% for the first time during the 12 weeks to 14 May, according to Kantar Worldpanel. And more is to come.
I’m encouraged by the steps Sainsbury’s is taking to boost its online operations. Supermarket e-tail has scope for strong growth over the next decade as investment picks up. Rumour has it that the business is also about to launch an online marketplace for fashionwear.
But this alone isn’t enough to tempt me to buy its shares. And nor is the retailer’s 4.6% forward dividend yield.
Anglo American
Following their recent dive to 52-week lows I’d rather buy Anglo American (LSE:AAL) shares for my portfolio. Its descent has supercharged the dividend yield for 2023 to 9.4%.
Sky-high yields are often a red flag for investors. But I believe there’s a great chance the mining share will meet brokers’ dividend forecasts. The predicted payout is covered 2.4 times by anticipated earnings.
A reading above 2 times provides a wide margin of safety. Incidentally, coverage at Sainsbury’s sits some way back at 1.6 times.
It’s possible that profits estimates for Anglo American could disappoint as the global economy cools. Latest data from commodities glutton China is especially concerning (industrial production growth of 5.6% in April was around half of what analysts were expecting).
But I’m expecting the FTSE firm to deliver impressive profits over the long term. Products like its copper, nickel, iron ore and platinum group metals (PGMs) are tipped to soar as the energy transition and emerging markets urbanisation continue.
I think mega miners like this are an attractive way to make money from these trends. Their large asset portfolios — Anglo American has dozens of assets spanning the globe — help to spread the risk. And these bigger operators also have more financial firepower to grow through acquisitions and development of existing sites.
I’ll be looking to invest in the company if I have spare cash next month.
