While there are plenty of companies with bright prospects on the FTSE 100, I think the best shares to buy are dividend stocks.
I have an obvious reason for this view. Studies have shown that in the long run, companies that pay dividends outperform other stocks when earnings are included.
Dividends can be a valuable source of income in a market downturn, providing capital for investors to re-employ and buy shares at lower prices. It creates a cycle of virtue. Investors can reinvest dividend income to generate more dividend income.
Unfortunately, not all dividend stocks are created equal. For example, some income investors may consider Imperial brand Must be one of the best stocks to buy on the FTSE 100. In fact, it currently offers the highest yields below 9% on the index.
However, over the past few years, the group has struggled with high debt levels and stable profits. To reduce the pressure on the balance sheet, management has already reduced payments. I think there is a possibility of further decline if there is no sudden jump in income.
As such, I will stay away from this FTSE 100 company. Nonetheless, I think there are plenty of other income champions on the index, which looks undervalued. Some of these I already own, and others I would be happy to add to my portfolio today.
Shares to buy for dividend income
One of my favorite stocks on the FTSE 100 is the insurance group Admiral (LSE: ADM). I already own shares in this company, in part, because of its earnings certificate.
Car insurance is a legal requirement in the UK, and Admiral is one of the largest insurance groups in the country. This suggests to me that the business will always have a captive market, which is an excellent quality.
In addition to its presence here in the UK, the company is also expanding abroad. Its businesses in Spain, France, Italy and the United States are growing rapidly, and for the first year in a row they recorded little profit.
I think the company’s international growth with the UK business will help support Admiral’s dividends.
Its management has adopted a unique approach to paying the company’s investors. Instead of aiming for a regular dividend each year, management has a regular dividend goal and then it is supplemented with a special dividend. This gives the corporation more flexibility when setting the distribution. Based on regular payments alone, the FTSE 100 stock could produce 3.5% this year. With special distribution, the yield can increase up to 6% or 7%, although at this stage it is only an estimate.
Among the risks that the company may face in the future are high interest rates, which can affect its investment portfolio. Competition can also hurt the profit margin in the insurance sector.
FTSE 100 returns
I think one of the best sources of income in the current market is the housing sector. The UK needs to build 300,000 properties a year to meet demand. The country is currently building only 200,000 a year.
Consecutive governments have tried to stimulate the building with little success. As a result, home prices have risen sharply, and demand for new homes has remained strong.
Against this backdrop of rising prices and growing demand, manufacturers prefer Taylor Wimpe, Persimmon, Berkeley And Barrett Developments Everything seems attractive to me as an income investment.
Instead of choosing one of these enterprises for my portfolio, I would buy a basket of four. And the reason I would use this method is simple.
Each of these companies targets a different segment of the market in different regions. Berkeley had an average selling price of £ 770,000 last fiscal year. It primarily made property in London and the South East. The average selling price of Persimmon in the first half of its fiscal year was just £ 236,000.
By acquiring these four companies for my portfolio, I think I can create a basket of some of the best stocks for dividend earnings with the added variety on the FTSE 100. Stocks support dividend yields of up to 8% and have a history of additional cash returns, including their special dividends.
But the risks we may face include higher interest rates, which can affect the demand for new property. Additional construction costs can also affect profit margins.
Income and growth
This is the final agency I would like to highlight in this article Expert (LSE: XPN). With a 1% dividend yield at the time of writing, some investors may pass on this stock as an income game. I think it could be a mistake.
The best investors focus on what a business can be, not what it is. Over the past decade, Experian has become one of the largest data companies in the world, especially financial data. It is an industry where fame and information are more valuable than anything else. As Experian grows, it can develop both its database and reputation, which should lead to an increase in profits.
Therefore, as the firm’s profits increase, I think it should be able to give investors more cash back.
The company’s dividends may not seem attractive, but management is always in favor of repurchasing shares as well as paying cash back with dividends. Over the past five years, including repurchases, Experian’s total shareholder yield has been about 2%.
Simply put, I am overwhelmed by the growth prospects of the FTSE 100 company. That’s why I think it’s one of the best stocks to buy today.
Although I will buy stocks for my portfolio, I will keep an eye on significant risks that could affect growth. This includes the possibility of a cyber attack, which could hurt its reputation. Competition in the data management sector can put pressure on companies to spend more. It will also affect profit margins.