Im searching the London Stock Exchange for the best UK dividend stocks to buy for passive income next year. Here are two near the top of my shopping list.
Box clever
Consumer spending could come under significant pressure in 2023 as economic conditions worsen. But I still believe packaging manufacturer DS Smith (LSE: SMDS) should be a top income stock to buy.
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For one, online shopping looks set to continue growing even if the wider retail sector comes under pressure. So demand for its boxes from e-commerce firms like Amazon should continue growing strongly.
Secondly, DS Smith sources much of its revenues from the highly-defensive food grocery sector. Here it supplies back-of-store cardboard boxes as well as shop floor furniture like displays and shelf boxes.
And finally, its focus on reducing waste and eliminating plastic should boost sales as companies strive to improve their environmental credentials
A FTSE 100 bargain
That said, I am aware of the potential impact of rising paper costs. I’m also concerned about the prospect of industrial action in the near future. Today the GMB Union said that 93% of its members at DS Smith had voted to strike over pay.
Still, I believe the benefits of owning this FTSE 100 share outweigh the risks. For this financial year (to April 2023) it trades on a price-to-earnings (P/E) ratio of 8.2 times.
This is well inside the accepted bargain benchmark of 10 times and below. And it gives plenty of scope for its share price to bounce back following 2022’s current 23% fall.
At current prices, DS Smith also boasts a healthy 5.7% dividend yield. I think it’ll prove a great way to generate passive income next year.
8.4% dividend yield!
I’m also thinking about buying Springfield Properties (LSE:SPR) for its excellent all-round value. However, for the time being I’ll hold off until the housing market outlook improves.
In the long term, I still expect businesses like this to generate healthy profits. Population growth means that demand for housing will keep on rising. Government support to first-time buyers and an ultra-competitive mortgage market should endure to drive homes transactions, too.
But I’m holding off on buying more housebuilding shares for the time being. Interest rates are tipped to keep rising well into 2023. And they have the potential to compromise profitability (and therefore dividends) at the likes of Springfield.
Latest Halifax data showed average UK home prices drop 0.4% month on month in October. This was the biggest fall in almost two years.
Scotland-focused homebuilder Springfield trades on a P/E ratio of just 4.9 times for this year. It also boasts an 8.4% dividend yield for the fiscal period (to May 2023).
These are extremely attractive numbers. But with estate agency Savills warning of a 10% fall in home prices in 2023, I think I’ll hold off investing here just for the moment.
