These FTSE 100 dividend stocks offer yields that are far above the 3.7% index average. But despite this, I’d still rather buy other UK shares for passive income this year.
abrdn
Dividend yield for 2023: 9%
Investment companies like abrdn (LSE:ABDN) are having a tough time as investors rush for cover. Conditions are likely to remain difficult as people react to rising interest rates and signs of trouble in China by withdrawing their cash.
At abrdn, net outflows reached a forecast-beating £4.4bn in the first half of 2023. This was up £600m from a year earlier. And as a consequence, adjusted operating profits at its Investments division slumped by 66% over the the period.
At some point market confidence will recover and financial services providers will thrive once more. There is ample scope for sector growth as people become more active in saving for retirement.
The trouble I have with abrdn is that its share price remains on a long-term downtrend. It’s fallen 50% in five years as its customer base has eroded. The acquisition of investment platform interactive investor gives reason for hope, but may just prove to be a sticking plaster.
Competition in the market is intense. And the FTSE company’s brand is yet to recover following the poor performance of many of its funds.
Today abrdn shares trade on a forward price-to-earnings (P/E) ratio of 13.2 times. This isn’t low enough to encourage me to invest.
Persimmon
Dividend yield for 2023: 6.1%
I’m not as pessimistic with Persimmon (LSE:PSN) shares as I am with abrdn. In fact, this is a FTSE 100 share I actually bought last summer.
However, I believe there are much better stocks to buy today for short-term passive income. The UK housing market is deteriorating at an alarming pace, with average asking prices dropping by more than £7,000 in August. This is the worst monthly result since 2018, according to Rightmove.
The trouble for Persimmon is that things look set to get worse before they get better. Interest rates are tipped to peak at 5.75% early next year, up from current levels of 5.25%.
But signs of stubborn core inflation mean that forecasts — as they have been throughout 2023 — could continue to be raised in the months ahead. This not only casts a cloud over buyer affordability. It also could have huge ramifications for the broader economy and jobs.
I still believe that Persimmon will deliver solid shareholder returns over the longer term. There are no signs of improvement in Britain’s failing homebuilding policy. Meanwhile the country’s population continues to steadily grow, increasing the strain on the existing property shortage.
I expect profits and dividends here to rise strongly again once current market turbulence subsides. However, weak dividend cover of just 1.3 times, combined with falling cash reserves, leaves predicted payouts for 2023 in some peril. Cash on the balance sheet halved year on year to just £360m in June.
