The FTSE 100 index of shares have remained pretty stable in 2022. In fact it’s up a respectable 2% so far, despite a backcloth of extreme economic and political turbulence.
The vast international exposure of the FTSE index has allowed it to perform better than swathes of the London Stock Market. But things could be much, much tougher in 2023.
The OECD has warned in its latest Economic Outlook report that “the global economy is facing significant challenges”, noting that:
“Growth has lost momentum, high inflation has broadened out across countries and products, and is proving persistent. Risks are skewed to the downside. Energy supply shortages could push prices higher. Interest rates increases, necessary to curb inflation, heighten financial vulnerabilities. Russia’s war in Ukraine is increasing the risks of debt distress in low income countries and food insecurity.”
2 top dividend stocks?
In this landscape, UK share investors need to tread carefully then, and especially those investing for passive income. Corporate profits could take a battering as the world economy cools and dividends could disappoint.
These two FTSE 100 shares have all caught my eye because of their market-beating dividend yields. Should I buy them for 2023?
1. Taylor Wimpey
Housebuilder Taylor Wimpey (LSE:TW) is a FTSE 100 share I already own. And I’m tempted to buy more on account of its vast 8.5% dividend yield for 2023.
I believe the long-term outlook for the newbuild market is robust. The government believes Britain needs 300,000 new homes each year due to steady population growth. Yet building rates continue to lag this target and look set to continue to, driven by a lack of effective housing policy.
All this bodes well for builders like Taylor Wimpey. A shortage of homes pumped up property prices during the last decade which, in turn, supercharged these companies profits and dividends.
But despite this bright picture I won’t add to my housebuilder shares just yet. This is because the sector faces massive upheaval next year (and potentially in 2024) that could damage shareholder payouts over the period.
Latest Nationwide data showed house prices fall 1.4% in November. This was the biggest fall for two-and-a-half years. And they could continue falling if the UK economy enters a long recession and interest rate rises push mortgage costs higher.
2. National Grid
I think investors would be better off buying National Grid (LSE:NG) shares today. I think this blue-chip stock might be in a better position to deliver strong passive income in 2023.
The business — which has a monopoly on the distribution and transmission of electricity in the UK — could be one of the best FTSE 100 stocks to buy for what could be a tough year ahead. That’s even though the problem of high costs poses a constant threat.
The ultra-defensive nature of its operations should give it the firepower to keep paying big dividends, regardless of broader economic conditions. It’s a view that City brokers share. In fact, they expect annual payouts to grow over the next two financial years (to March 2023 and 2024 respectively).
So National Grid carries meaty yields of 5.4% and 5.6% for these two fiscal periods. These figures are far above the 3.7% forward average for FTSE 100 shares.
