I’m searching the FTSE 100 for the best dividend shares to buy. Are these UK blue-chips too good to ignore?
BAE Systems
Global defence spending has soared in recent times. According to the Stockholm International Peace Research Institute (SIPRI), total arms budgets rose 3.7% in 2022 to fresh peaks north of $2.2trn.
It looks like weapons expenditure in the West will remain at elevated levels too, as tensions over Chinese and Russian foreign policy grow. So major defence contractors like BAE Systems (LSE:BA.) can expect to grow profits strongly.
Strong first-half financials from the company illustrate how it is thriving in this new geopolitical era. Sales and pre-tax profits soared 11% and 54% respectively in the period, to £12bn and £1.2bn. Meanwhile, its order backlog leapt to all-time highs of £66.2bn.
BAE Systems has significant expertise across the defence market, and strong relationships with the UK and US. So it’s near the front of the queue when it comes to winning new contracts. It’s also doing increasing amounts of business in emerging markets which bodes well for long-term growth.
City analysts expect profits and dividends at the industry giant to keep rising for the next three years, at least. This results in a healthy 3% dividend yield.
I think the business is a great stock to buy for sustained dividend growth. That’s even though lumpy contract timings could impact earnings in certain years.
Persimmon
I’m also giving Persimmon (LSE:PSN) shares another close look today. It’s a share I already own, and the firm’s share price jump following latest trading numbers released Thursday has caught my attention.
The business chalked up 4,249 completions in the first half, leading it to predict full-year sales of 9,000. This is at the higher end of forecasts. The firm also maintained its 2023 underlying operating profit estimates after recording earnings of £152.2m between January and June.
That said, Persimmon’s first-half results are far from brilliant. The best I can say is that they are better than feared. Completions were down 36% year on year, while operating profit tanked by two-thirds as buyer interest evaporated.
The danger is that demand for new homes could remain under severe pressure as the UK economy struggles and interest rates remain above recent norms. The Royal Institution of Chartered Surveyors (RICS) has just announced the biggest fall in average home prices since 2009.
For the first half of 2023, Persimmon has announced a 20p per share dividend. But tough trading conditions — allied with a steady drain on its cash reserves — could limit the firm’s ability to meet broker forecasts for this year.
The company carries a healthy 5.3% dividend yield for this year. However, weak dividend coverage of 1.3 times puts current dividend estimates in peril.
A brighter long-term outlook for the homes market means I’ll cling onto my Persimmon shares. But, right now, I’d rather buy other FTSE 100 shares for passive income now.
