I’m always on the lookout FTSE 100 Dividend stock to buy for my portfolio.
Earnings stocks can provide a level of security in a portfolio. I own these stocks as well as growth stocks, which could be more volatile. As such, I think the combination of income and growth stocks allows me to achieve the best of both worlds, namely growth and stability.
Unfortunately, not all dividend stocks are created equal. When looking for stocks to buy, I avoid companies that offer investors the lion’s share of their profits, as it is usually volatile.
There are a few FTSE 100 companies that fall into this bucket. And with that in mind, here are two lead index dividend stocks that I plan to avoid and sell if I already own them in my portfolio. I will replace these companies with some of my favorite earnings stocks in the Blue-Chip Index.
FTSE 100 dividend stock for sale
Is the first company On the national grid (LSE: NG). It has been a dividend champion for years and head of the portfolios of income investors. Therefore, some investors may wonder why I will not be the champion of this income?
The reason is simple. Although the stock currently supports a dividend yield of 5%, it is under increasing pressure from policy makers in the National Grid. It has been attacked for being inefficient and prioritizing dividends over investments.
In addition to this criticism, the UK electric grid is at an important junction. Demand for electricity will increase as the renewable and green energy industry expands. The National Grid will have to invest a significant amount to meet the challenge of this transformation. If not, it will attract more criticism.
Some analysts have already speculated that without significant investment in the UK power grid, blackouts could occur. The increasing number of electric vehicles will create increasing pressure on the grid, which it cannot tolerate.
That said, the National Grid has virtual exclusive rights over England’s power infrastructure. Therefore, the company may be able to operate successfully in hostile environments. However, considering the risks described above, I do not want to own stock in my portfolio.
Dying for Air
I also sold shares Imperial brand (LSE: IMB). Again, this FTSE 100 company is generally considered the revenue champion, but I’m not sure.
There are three reasons for this. First, the number of smokers around the world is declining. This will put pressure on the top and bottom lines of the group. Second, the sector is widely regulated and taxed. If policymakers want to stop smoking, they can do so very easily.
And third, the Imperial has a fragile balance sheet. It continues to pay investors almost all of its earnings through dividends, which has left the rest of the cash group starving. Considering the challenges of managing a highly regulated and declining market, this is not a good position for the company. If there is a significant change in its operating environment, there is less space for breathing.
Considering these risks, I would avoid the stock even though it currently supports dividend yields of just over 9%.
This does not mean that it is going to be a bad investment. The group has made significant investments in so-called low-risk products and this market is still expanding.
Also, in the past, cigarette companies have been able to raise prices to offset declining sales volumes. The Imperial may be able to maintain this strategy and support its dividends.
Buy FTSE 100 dividend stock
There are several companies that are currently standing by me as big income investments. The first company to produce generic drugs Wisdom (LSE: HIK).
The group produces generic and low-cost versions of the drug for sale worldwide. I think it’s an exciting growth market. As the world economy expands, I think the demand for healthcare will only increase.
Unfortunately, not all consumers have access to free healthcare, or can afford to pay for it. That’s why I believe the demand for low-cost generic versions of drugs will grow rapidly. While billions of consumers worldwide cannot afford expensive treatment, Hikma can help them gain access to these drugs.
Over the past decade, the company has created a special place for itself in the market. It has invested significant amounts in research and development in the manufacturing sector. As a result, profits have expanded rapidly, and so have group dividends.
Although the stock only supports a dividend yield of 1.6%, at the time of writing, I think management payments will continue to increase as profits increase. That’s why I think it’s one of the best FTSE 100 dividend stocks to buy and I’ll snap shares right now.
I will also buy the FTSE 100 retailer Tesco (LSE: TSCO) for my dividend share portfolio. I am looking for an integration company in my portfolio that has a stable and predictable income stream. Tesco tick this box. Consumers should always eat and drink, which suggests that there will always be a market for the company’s products.
In recent years, there has been a significant transformation of the organization. It reduces costs and facilitates operation. As a result, its balance sheet is now stronger than ever and cash production is stronger.
In the latest results, the group announced the return of 500 million shares as a way to reward investors. I will not refuse more cash income. For this I will buy the stock and its 4% dividend yield.
Some challenges companies may face, which may reduce profits and limit cash returns, including higher wages and food inflation. Both of these headwinds can increase costs and shrink margins.
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Rupert Hargreaves has no position on any of the shares mentioned. Motley Flower UK recommends Hikma Pharmaceuticals, Imperial Brands, National Grid and Tesco. Opinions expressed in the companies mentioned in this article may differ from those of the author and therefore our official recommendation in our subscription services such as Share Advisor, Hidden Winner and Pro. Here at The Motley Flower we believe that considering a variety of insights makes us a better investor.