Many stock market investors prioritise passive income, and I’m one of them. With dividends in my crosshairs, I’ve been looking for FTSE 100 stocks to buy next month.
I think this pair of shares, in the accounting software and housebuilding sectors, could fit the bill.
Let’s explore the outlook for each.
Sage Group
Sage Group (LSE:SGE) is a leading provider of accounting and enterprise resource planning software. The stock currently offers a 2.18% dividend yield.
The company delivered a mixed set of results for the first half of FY23. Revenue grew 16% to £1.09bn and the dividend per share rose 4%, from 6.30p to 6.55p. However, the operating profit margin shrank to 14.4% and earnings per share tumbled 34% to 9.78p.
Operating profit also fell 23%. But that figure is relative to a £49m one-off gain in the prior period for the disposal of Sage Switzerland. So I think the 14% rise in underlying profit to £227m is a better reflection of the company’s performance.
Increased digitisation investment by small-and medium-sized businesses (SMBs) will be critical to the firm’s future success, as they account for 98% of the companies in Sage Group’s target markets. The company’s increasing focus on cloud services and AI is testament to the opportunity here.
With SMBs as its key clients, the group is vulnerable to the possibility of reduced expenditure for its services if we fall into recession. Smaller firms often take the biggest hit in economic downturns. Nonetheless, few businesses are immune to recession risk and I like Sage Group’s ambitious plans to scale its offer. If I have spare cash, I’d buy this stock in June.
Taylor Wimpey
Taylor Wimpey (LSE:TW.) is one of Britain’s largest residential property developers. At present, shareholders benefit from a whopping 8.13% dividend yield.
Rising mortgage rates are a headache for housebuilders like Taylor Wimpey. Sluggish housing market activity and falling property prices squeeze the company’s margins. In that context, the rise in the core inflation rate, from 6.2% to 6.8%, will worry some shareholders as the spectre of further interest rate hikes loom.
However, the UK suffers from a chronic housing shortage. We’re already beginning to see a slew of policy proposals from the main political parties to encourage more housebuilding as an election approaches. This could translate into a more favourable regulatory environment for developers, which could support the Taylor Wimpey share price.
The company recently reiterated its expectation for 9,000-10,500 home completions in 2023. That’s a big slump from the 14,154 it achieved in 2022. Nonetheless, after a 12% share price fall over the past year, I think these risks have been largely priced in.
What’s more, at a price-to-earnings (P/E) ratio slightly above 6.5, I think the stock’s currently trading at an attractive multiple. Although, as a cautionary note, the forward P/E ratio is likely much higher if profits collapse this year.
That said, I think the firm is sufficiently resilient to ride out the current storm. Plus, the mammoth dividend yield (albeit not guaranteed) is good compensation for the risk I’m taking on by holding Taylor Wimpey shares.
If there are big share price dips in June, I’ll add to my position.
