These FTSE 100 dividend stocks all carry market-beating yields. Here’s what I’d do with them today.
Barratt Developments (8.4% dividend yield)
Housebuilders like Barratt Developments (LSE: BDEV) have been sources of big dividends for years. I’ve actually invested in this dividend share to boost my passive income.
But I don’t plan to buy more shares in any of the London Stock Exchange’s housebuilders right now. Soaring interest rates and the tanking UK economy mean the profits outlook for Barratt and its peers is fraught with danger.
The Office for Budget Responsibility (OBR), for one, has warned that home prices could sink 9% between now and 2024.
Having said that, I have no plans to trim my exposure to the housebuilders. First of all, I expect these shares to still provide better income that what’s on offer from most other dividend stocks. Barratt’s predicted dividend of 33.9p per share for this year is covered more than twice over by expected earnings.
Secondly, the decline in UK house prices might not be as pronounced as economists expect. The resilience of the market surprised commentators up until late September when then-prime minister Liz Truss released her disastrous mini-budget. Britain’s chronic homes shortage could still support prices and demand for new-builds in the short-to-medium term.
J Sainsbury (5.8% dividend yield)
While I’d hold on to Barratt shares, if I held J Sainsbury (LSE: SBRY), I’d sell without delay.
The cost-of-living crisis is intensifying the need for supermarkets to slash prices. At the same time costs are soaring because of rising labour, energy and product bills. This means that profit margins are crumbling. Sainsbury’s operating margin sank to 2.95% during the 28 weeks to 17 September, down 42 basis points.
The problem for established grocers like this is that the strain on consumer wallets looks set to intensify. The Office for Budget Responsibility says that household incomes will shrink 7% in the two years to April 2024.
The steady expansion of discount chains Aldi and Lidl will raise the pressure on Sainsbury’s to continue slashing prices, too to avert a mass customer exodus.
The company’s huge investment in online grocery may pay off handsomely. But the prospect of big internet profits alone doesn’t make Sainsbury’s a wise investment for me.
National Grid (5.4% dividend yield)
Despite the grim economic outlook there are several top UK-focused FTSE 100 shares I’d happily buy with spare cash to invest. National Grid (LSE: NG) is one of them.
This is a dividend stock with obvious defensive qualities. Britain’s electricity grid has to be kept up and running at all costs. This provides the business with supreme earnings visibility in good times and bad.
But National Grid shares are appealing for other reasons too. Its ongoing cost efficiency programme continues to impress (this boosted profits by a healthy £85m between April and September alone).
The company’s steps to decarbonise the energy network could also deliver big returns as the green energy transition gathers pace.
Rising repair bills due to extreme weather events are a growing concern. But on balance I think National Grid’s a great share to buy for passive income.
