These FTSE 100 stocks offer yields comfortably north of the index’s 3.5% forward average. Should I buy them for my investment portfolio?
British American Tobacco
Companies whose products have strong brand power can offer terrific protection for investors. Such businesses can hike prices to offset cost pressures without a significant loss of earnings.
British American Tobacco (LSE:BATS) is one such stock whose goods can be considered market leaders. These include timeless tobacco products like Lucky Strike, Camel and Pall Mall. However, I don’t intend to invest in the FTSE 100 company in the near future.
Not even soaring demand for its non-combustible products is enough to tempt me. Sales of its next-generation technologies like its Vuse e-cigarettes soared 40.9% in 2022 to £2.9bn.
I believe the uncertain outlook for its industry makes British American Tobacco shares a risk too far. Bans or restrictions governing cigarette sales, marketing and usage continue to grow in number. And legislators are turning their attention to vapourisers and similar products.
Last June, for example, the US Food and Drug Administration banned all of e-cigarette manufacturer’s Juul’s products from shelves in the country. This reflected the body’s concerns over the rising number of teenage vapers. Regulators and legislators are also getting tough in other parts of the world.
British American Tobacco’s share price remains in a long-term downtrend. And I don’t see any reason to expect it to break out of this slide. For this reason I’m keen to avoid the business despite its 7.8% forward dividend yield and low price-to-earnings (P/E) ratio of 8.5 times.
Taylor Wimpey
Housebuilding is an industry with a more secure long-term future. It’s why I hold Taylor Wimpey (LSE:TW) shares in my portfolio.
The UK homes market is experiencing a painful downturn at present. Latest Nationwide data showed average property values fell at their fastest rate for 11 years in February.
Yet I feel the outlook for Taylor Wimpey and its peers remains rock solid over a prolonged time horizon. Steady population growth, combined with a failure of successive governments to ramp up housebuilding activity, means the business should grow profits strongly when the economic cycle improves.
Does this mean I’ll buy more of the stock to boost my passive income in 2023, though? The answer is no.
City analysts expect Taylor Wimpey to cut the annual dividend this year. Yet weak dividend cover and a murky market outlook mean the eventual payout may disappoint investors.
The business announced last week that “our reservation rate is significantly lower than in recent years.” Its forward book dropped by a quarter year on year to 7,499 homes as of December 31. Its balance sheet remains robust yet the business may step up cash conservation if the market worsens significantly.
I think there may be better high-yield UK shares for me to buy for dividend income this year. So for the time being, I’ll leave Taylor Wimpey on the shelf alongside British American Tobacco.
