I’m searching for the best FTSE 100 income stocks to buy today. Are these blue-chip shares brilliant buys, or dividend traps?
BP
Oil giant BP (LSE:BP) also offers impressive dividend yields of 4.5% and 4.8% for 2023 and 2024 respectively. Yet an uncertain outlook for oil prices makes this an income stock I’m happy to avoid.
Values are in danger of sinking as central banks keep hiking rates, putting pressure on an already weak global economy. This could pull the oil giant’s profits (and share price) through the floor.
But I’d avoid the company’s shares regardless of the near-term picture. Energy transition leaves a huge question mark over the future of oil majors. And BP is showing only token enthusiasm to soothe any fears the market has on this.
In fact it’s scaling back its green ambitions as it chases big profits and healthy cash flows today. It now plans to cut oil output by just 25% by the end of the decade, down from a previous target of 40%. The amount it intends to spend on renewables, hydrogen, and other forms of cleaner energy remains dwarfed by what it plans to shell out on developing oil and gas.
Worryingly for BP’s share price, investors are turning their back on the oil industry. A new report by pension firm PensionBee shows that 21% of British savers want the sector excluded totally from their pension funds. That’s up 6% in just a year, and company policy suggests this trend could continue.
Ongoing supply fears could keep crude prices and thus company profits bubbling nicely for the time being. But I fear that this short-termism could end up costing shareholders. And as someone who buys shares to hold for the long haul this is a big problem for me.
Aviva
I’d much rather buy Aviva (LSE:AV) shares for a second income. Unlike BP, this FTSE 100 business operates in a market with significant room for structural growth.
As a major provider of life insurance and retirement products it’s well placed to exploit rapidly growing elderly populations in its core markets of the UK, Ireland and Scandinavia. The Office for National Statistics thinks the number of over-65s in Britian alone will rise by 5m between 2019 and 2043, to 17.4m.
Aviva generates mountains of cash which helps it to pay market-beating dividends year after year. Its Solvency II capital ratio stood at a robust 196% as of March. The firm’s strong balance sheet even encouraged it to launch a £300m share buyback programme that it completed last month.
The company operates in a highly competitive market. But strong brand power and customer satisfaction scores mean it continues to thrive in this tough environment. It’s the country’s largest life insurance provider with 11m customers on its books.
As for dividends, yields here stand at 8.5% for 2023 and 9.2% for next year. This is a FTSE 100 stock I’d buy to generate long-term passive income.
