In recent weeks I have been looking for high-dividend-yield FTSE 100 shares to add to my portfolio. I think it is important for my investments to offer a strong passive income that is independent of short-term share price fluctuations. Here are two UK shares that I think offer both a stable dividend yield and a positive outlook to merit a long-term position in my portfolio.
A robust energy giant
Scotland-based energy firm SSE (LSE:SSE) is a leader in the UK green energy shift. Alongside wind farms, It has plans to triple renewable energy output with £12.5bn in new investments. The management team has positioned the company well to profit from the transition to clean energy.
Due to the UK’s reliance on the services SSE provides, it is reasonably placed well for future uncertainty. If its costs rise as a result of inflation or supply chain issues, SSE can increase consumer prices up to a point, knowing it should see no large fall in demand. This makes it slightly more resistant to inflation risks and supply chain uncertainty than FTSE 100 peers and should help maintain a stable profit margin.
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While the 5% dividend yield is not as high as some FTSE 100 outliers, it is well above the index average of 3.5%. I think this could remain fairly consistent over the next few years due to SSE’s ability to maintain stable profits and that gives me confidence around a long-term investment.
However, the company does have a large debt load that could become more expensive to finance if interest rates continue rising. SSE is also seeing pressure from activist hedge fund Elliott Management that’s pushing for a speedy transition to net zero energy production. The hedge fund could even encourage the sacrifice of future dividends to finance the shift. Despite these risks, I am still a supporter of SSE and I am considering opening a position.
A cheap housebuilder with a 10% dividend yield!
I’ve talked about the opportunities housebuilders offer in recent months. Homes are in short supply in the UK and the government has ongoing targets to build more. Persimmon (LSE:PSN) is the second-largest UK housebuilder after Barratt Developments and it builds over 13,000 houses a year. With a 10.8% dividend yield, it is one of the highest-yielding FTSE 100 shares.
The share price has struggled over the last year, falling 31%. There is a consensus that the increasing Bank of England base rate would reduce mortgage affordability and lower housing demand. However, the loosening of mortgage affordability tests and the existing high demand for housing still makes me confident in the future of housebuilders.
Persimmon currently has no debt and trades on a low price-to-earnings (P/E) ratio of 8.8, which signals more positivity to me. This low P/E ratio, alongside the fall in share price in the recent year, suggests to me that the market is undervaluing this UK share. However, there are still risks to consider. Supply chain disruptions and inflation could increase the costs of building materials and squeeze profit margins in the short term.
Although, the incredible dividend yield and robust business conditions outweigh the risks for me. And they make this cheap FTSE 100 share another one I am considering adding to my portfolio with my next chunk of savings.
