I’m looking for the best FTSE 100 income shares to buy for passive income next year. Here are two I’d like to buy with cash to invest.
Associated British Foods
Why I’d buy it:
When consumers feel the pinch they switch down to cheaper alternatives. This is why I’m tipping Associated British Foods (LSE: ABF) to thrive in 2023. I expect demand at its Primark discount clothing chain to remain rock-solid.
Last month the business announced plans “to hold prices for the new financial year at the levels already implemented”. It’s a programme that could put it on course to win significant market share.
I’m also excited for ABF following the launch of Primark’s Click and Collect service. Its website crashed yesterday as it rolled out store collections in parts of Wales and England. There is plenty of scope for growth here as e-commerce steadily grows.
Cost inflation could put extreme pressure on ABF’s margins, however. And especially given Primark’s price freeze commitment.
2023 dividend outlook:
The dividend yields here aren’t the biggest. A predicted 46.3p per share payout for this year (to September 2023) yields 3%. This is some distance behind the 3.8% FTSE 100 forward average.
But I’d buy ABF for the prospect of strong and sustained dividend growth. The expected dividend is 6% higher than last year’s total shareholder payout.
And despite the gloomy economic outlook, ABF looks in good shape to meet City forecasts. The predicted dividend is covered 2.6 times by anticipated earnings. Any reading above two times provides a wide margin of safety for investors.
Why I’d buy it:
National Grid (LSE: NG) provides an essential service. This in my opinion makes it a top income stock to buy for an uncertain 2023.
This resilience was demonstrated during the Covid-19 panic when the firm continued growing dividends. Whatever economic, political, or social crisis occurs, we still need the lights to stay on. So earnings remain stable and so does the company’s ability to pay solid dividends.
I also like the fact National Grid has a monopoly in keeping the UK’s power lines in operation. It doesn’t have to worry about a rival company gaining market share and eating into its profits.
2023 dividend outlook:
The firm is forecast to grow the annual dividend strongly over the medium term. Payouts of 54.73p and 57.1p are expected in the financial years to March 2023 and 2024 respectively. That’s up from 50.97p last time out.
As a consequence, National Grid boasts market-beating yields at its current share price. These sit at 5.4% for this year and 5.6% for fiscal 2024.
One drawback is that dividend coverage is quite meagre for the forecast period (at just 1.2 times). This means dividends could theoretically miss forecasts if earnings disappoint even modestly. High repair and maintenance costs on the back of bad weather could cause this, to name one example.
That said, poor dividend coverage is common for utilities stocks like this. Yet by and large they remain reliable providers of big dividends. So National Grid sits near the top of my income stock shopping list.
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- If I’d invested £5,000 in National Grid shares 5 years ago, here’s how much I’d have now
- 2 of the safest dividends on the FTSE 100!
- Offering a 5.5% yield, National Grid shares are a buy for my portfolio
- 1 of the most popular UK stocks right now, according to investors
- 2 stocks I will ‘never’ sell
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.