3 FTSE 100 Dividend Stocks to Consider in 2023
Dividend stocks offer investors the opportunity to diversify their portfolio whilst earning regular income, which can either be kept as cash or reinvested.
The UK’s benchmark index, the FTSE 100, is comprised of the 100 largest companies listed on the London Stock Exchange (LSE) by market capitalisation, many of which are generous dividend payers. In this article, we will highlight 3 FTSE 100 dividend stocks to consider adding to your portfolio for additional income in 2023.
Table of Contents
How to Choose the Best Dividend Stocks
Before we dive into our picks for FTSE 100 dividend stocks to consider in 2023, it is worth quickly identifying some of the metrics investors should consider when picking dividend stocks.
- Dividend Yield
- Annual dividend per share as a percentage of current share price
- Earnings per Share (EPS)
- A company’s earnings divided by the number of shares
- Dividend Payout Ratio
- Annual dividend per share as a percentage of EPS
- Continuous Dividend Payments
- Has the company got a proven history of continuously paying dividends?
- Payout Growth
- Have dividend payments been growing over time?
- Debt
- High debt can be a red flag for dividend stocks, as it may impact a company’s ability to make future payouts
FTSE 100 Dividend Stocks to Consider
The FTSE 100 has a reputation for being home to many companies which, whilst not offering spectacular growth prospects, do pay handsome dividends. But what are the best FTSE 100 dividend stocks to consider in 2023?
Remember, diversification can play an important role in building a successful investment portfolio. Therefore, in the following sections, we will highlight 3 top FTSE 100 dividend stocks which all operate in different industries.
Rio Tinto
Rio Tinto is the second-largest metals and mining corporation in the world and is the first on our list of top FTSE 100 dividend stocks.
Rio Tinto, who paid record dividends in 2021, has a long history of generous payouts to shareholders. Whilst there have been a handful of instances where annual dividends have decreased or remained the same, the overall trend is one of increasing payouts to shareholders.
At the time of writing, the mining giant boasts one of the highest dividend yields on the FTSE 100, coming in at a lofty 9.3%.
Whilst Rio Tinto works with various commodities, iron ore remains its bread and butter. In 2021, iron ore accounted for just under 60% of total gross product sales. In the same year, more than 57% of Rio Tinto’s sales revenue was generated in China, who reportedly account for more than 70% of total global iron ore imports.
This means that the mining company finds itself somewhat exposed to both fluctuations in iron ore prices and the health of the Chinese economy.
After hitting a record high in July 2021, iron ore prices came under pressure and, at the beginning of 2023, the commodity is trading almost 50% lower. Much of this downward pressure is due to events in China; with a slowdown in manufacturing, a property crisis and restrictive Covid-19 policies all playing a part.
However, the end of China’s zero-Covid policy and reopening of their economy will potentially come as a welcome boost to iron ore prices and Rio Tinto’s share price in the coming months.
British American Tobacco
Whilst many may feel morally opposed to investing in the tobacco industry, there is no escaping the fact that it has a long history of providing shareholder value. Tobacco stocks tend to generate a shedload of cash, which allows them to reward shareholders with attractive dividends.
British American Tobacco operates in around 180 countries and is one of the largest tobacco companies in the world by market capitalisation. At the time of writing, the tobacco stock has a dividend yield of 6.5% and has a track record of increasing dividend payments for more than 20 years. Over this time its dividend has grown from 29.00p per share in 2000 to 217.80p per share in 2022.
Of course, the risks associated with investing in British American and its peers are well-publicised. Increasing awareness of the dangers of smoking have led to a long-term decline in the number of smokers worldwide and industry regulation is constantly becoming stricter.
However, British American remains profitable, with a sizeable operating margin of 29% in the first half of 2022. The company is also pivoting away from relying on cigarettes by investing heavily in next-generation products. Whilst these products currently only make up a small portion of total revenue – 10% in H1 2022 - it’s a portion which is growing, with revenue increasing 45% year on year in the first half of 2022.
National Grid
When picking dividend stocks, it’s important to remember that payouts are never guaranteed. If a company’s earnings take a hit even the most reliable dividend payers may be forced to cut or halt payouts.
Therefore, with the UK reportedly already in recession at the start of 2023, dividend investors should try and identify companies that can continue to rely on strong earnings throughout an economic downturn – which is what we have done with the next on our list of FTSE 100 dividend stocks.
National Grid owns and operates electricity and natural gas transmission networks throughout Great Britain, where it enjoys a near total monopoly. It’s the only company licensed to transmit electricity in England and Wales, meaning all electricity generated in these countries has to pass through its network.
Regardless of what happens in the economy this year, we can be sure that people will continue using electricity. Consequently, National Grid should be able to rely on a consistent flow of revenue for their much-needed services.
At the time of writing, National Grid shares have a dividend yield of 4.9% and have continuously hiked payouts for more than 20 years.
However, slightly concerning is the company’s net debt, which rose 8.6% to £46.5 billion in the six months between 31 March 2022 and 30 September 2022. That’s a lot of debt, which could create problems for the company down the road, particularly in a climate of rising interest rates.
FTSE 100 Highest Dividend Yielding Stocks
Now that we have revealed two of the best FTSE 100 dividend stocks to consider in 2023, to round things off, we have compiled a list of the current ten FTSE 100 highest dividend yielding stocks.
Depicted: Table created by author - 17 January 2023.
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