Here are two FTSE 100 dividend stocks I’m considering buying for my portfolio today. I think they could be terrific sources of long-term passive income.
Persimmon
I’m considering increasing my holdings in UK housebuilding shares. And Persimmon (LSE:PSN) — on account of its 6.4% dividend yield — is near the top of my shopping list.
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Investing in these highly cyclical shares is risky as Britain’s economy struggles. A surge in unemployment could cause home sales to fall sharply. So could the impact of additional interest rates hikes to tame inflation.
Yet there are signs that the sell-off of housebuilding shares late last year may have been over the top. As a result snapping up Persimmon stock could be a good dip-buying opportunity.
Recent data shows that the homes market is performing much better than many analysts and economists had forecast. So the profits and dividends at residential property builders could beat all expectations.
Data from Rightmove today showed the average home value rose 0.8% (or nearly £3,000) in March. It added that data “point to a market on a much more stable footing than many anticipated and cautiously transitioning towards the activity levels of the more normal market of 2019.”
As well as that huge dividend yield, Persimmon’s share price carries an undemanding price-to-earnings (P/E) ratio of 10.8 times at current levels. These numbers might make it one of the best FTSE value stocks out there.
United Utilities Group
Water supplier United Utilities Group (LSE:UU.) doesn’t offer the same mighty yield as Persimmon. For the new financial year beginning in April this sits at 4.7%.
But I’m considering buying the utilities business for passive income. Its dividend yield still comfortably beats the 3.7% FTSE 100 average. And what’s more, dividend forecasts here are much more robust than those of other blue-chip shares.
This is thanks to the essential service that companies like United Utilities provide. Regardless of difficulties in the wider economy it can expect profits to continue flowing. It has the means and the confidence to pay above-average dividends year after year.
Its defensive operations also give it a better chance to sustainably grow dividends. The company’s policy under current regulatory rules is to grow payments in line with CPIH (consumer price inflation plus housing costs) through to fiscal 2025.
I must mention that dividends could be at risk if regulators decide to clamp down on shareholder rewards amid rising criticism over utilities’ actions.
Today Ofwat laid down new rules that could limit or even stop investor payouts from going out. It said that “water companies need to take stock of their performance for customers, the environment, and the company’s overall financial health” when deciding on dividends.
However, I believe United Utilities remains in great shape to keep paying decent dividends. It has strong credit ratings of A3 with Moody’s and BBB+ with Standard and Poor’s. The company has also maintained a four-star environmental rating with the Environment Agency.
Like Persimmon, I think the water supplier might be one of the best buys for dividend income.
