Being paid is my favourite time of the month.
But due to the cost-of-living crisis, my salary doesn’t go as far as it once did. I’m therefore considering investing in two FTSE 100 dividend shares to try and boost my income.
Solid foundations
In terms of market cap, Taylor Wimpey (LSE:TW.) is the third largest builder in the FTSE 100.
During each of the past two years, the company has sold more than 14k homes.
| Metric | 2021 | 2022 |
| Total dividend per share (pence) | 8.58 | 9.40 |
| Adjusted basic earnings per share (pence) | 18.0 | 19.8 |
| Dividend as a % of earnings | 48 | 47 |
| House completions | 14,302 | 14,154 |
However, this year it’s forecasting completions of 9,000-10,500.
In 2022, the company made a post-tax profit of £49,880 per house (excluding exceptional items). I’m going to assume this will be repeated in 2023.
This suggests earnings per share (EPS) could range between 12.7p and 14.8p in the current financial year.
At best, I can see a dividend for 2023 of 7.4p (50% of 14.8p) meaning the shares are presently yielding 6.4%. But this could be as low as 5.5% if the directors’ worst-case scenario is realised. However, even at the lower end of expectations, the yield is comfortably above the FTSE 100 average.
But I think there’s some uncertainty concerning the outlook for housebuilders.
Although headline inflation is now below 10% for the first time since August 2022, the core rate increased last month. This means interest rates could remain higher for longer, choking off a recovery in the housing market.
Keeping the lights on
One stock that’s less vulnerable to an economic downturn is National Grid (LSE:NG.)
The company transmits and distributes electricity and gas, both domestically and in the US.
It has a long track record of growing its dividend. Over the past five years, its payout has increased by 17%.
| Financial year (31 March) | Total dividend (pence per share) |
| 2019 | 47.34 |
| 2020 | 48.57 |
| 2021 | 49.16 |
| 2022 | 50.97 |
| 2023 | 55.44 |
Ignoring a special dividend of 84.38p — which was paid in 2017 after the sale of some of its gas distribution networks — the last time the company cut its return to shareholders was in 2011.
But due to a change in tax legislation, the directors are expecting EPS to be 6p to 7p (8.1%-9.4%) lower in 2024, than in 2023.
Despite this — primarily due to its large cash reserves — I expect the company to continue increasing its dividend. But even if it remains unchanged, the shares are presently yielding a healthy 5.1%.
The directors are hoping to grow EPS annually by at least 6% in 2025 and 2026. If achieved, I’m confident that the dividend will continue its upwards trend.
What should I do?
I like both of these stocks. But I already own shares in Persimmon, and I’m wary about having two housebuilders in my portfolio. However, I think Taylor Wimpey’s shares will generate a higher level of income this year.
National Grid is one of those reliable stocks that keeps on delivering. And although it’s a regulated business, it has a monopoly in all of the sectors in which it operates.
But even though I have a small level of cash available from my salary this month, I’m not going to invest in either.
My stockbroker charges a flat fee, irrespective of the value of the transaction, each time I make a purchase. This means it doesn’t make sense to make a small investment. It’s better to save and then invest a larger amount.
I’m therefore going to revisit the investment case for these two dividend stocks after a few more paydays.
