I’m looking for the best dividend shares to buy for my Stocks and Shares ISA for 2023. Here are two whose huge dividend yields have caught my eye.
Barclays
Banking giant Barclays (LSE: BARC) offers a 6% dividend yield for next year. This is far above the 4% average for FTSE 100 stocks. But I won’t buy the business given the rapidly-deteriorating outlook for the UK economy.
Encouragingly, the FTSE 100 bank’s third-quarter profits beat estimates in late October. This was thanks to the impact of higher interest rates which are tipped for further growth in 2023. Rate increases helped push Barclays’ income 17% higher between July and September.
But there’s a possibility that interest rates won’t boost bank profits as much as expected next year. Bank of England chief Andrew Bailey said last week that interest rates probably won’t rise as much as markets predict. This prompted ING Bank to estimate a peak of 4% in 2023, around a percentage point lower than the market is currently pricing in.
I’m not just worried about the impact of weaker interest rate hikes in 2023 either. The possible impact of soaring impairment costs on profits also isn’t on my mind. Barclays has already stashed away £722m to cover bad loans in the year to date.
But I am concerned about flatlining revenues as consumers and businesses feel the pinch. This could have a significant impact upon Barclays’ ability (and its enthusiasm) to pay big dividends next year.
The bank offers brilliant all-round value right now. At 148.6p per share it also trades on a price-to-earnings (P/E) ratio of just 4.7 times for next year. But this low valuation reflects the rising risks to next year’s profits.
National Grid
The uncertain outlook for the UK and global economies means I’d rather buy defensive shares for my portfolio. And National Grid (LSE: NG) is near the top of my shopping list.
In my opinion, the power transmission company is about as safe as it gets. Its services are in constant demand, regardless of broader economic conditions. Furthermore, the FTSE 100 firm has a monopoly on what it does, protecting its profits from the threat of competitors.
That’s not to say the National Grid is completely risk free. Keeping Britain’s network of power lines, pylons, and substations in business requires huge amounts of capital. And costs threaten to balloon as climate change increases the chances of significant weather-related damage.
Still, on balance, I think the company’s profits visibility is far more robust than most other UK shares. And as someone looking for big dividends in 2023, this is worth its weight in gold.
National Grid’s share price of 965.6p means dividend yields sit at 5.7% and 6% for the financial years to March 2023 and 2024 respectively. If I have spare cash to invest, I’ll be seeking to add the company to my own portfolio.
