I’m hunting for dividend income, and there are so many FTSE 100 stocks to buy offering sky-high yields that I’m getting a little dizzy.
I’ve just taken a gamble and bought housebuilder Persimmon, which at the time was yielding almost 20% a year. Not only that, it was trading at just five times earnings.
It still felt like a risky move, given that house prices are starting to fall as interest rates rise. Yet I’m betting that the shortage of property supply should sustain demand. Also, mortgage rates may not rise as much as we expected just a couple of weeks ago.
Top income stocks to buy
Persimmon’s dividend cover is thin at 1.1% but even if management does cut its shareholder payout, it should still be pretty substantial.
At the other end of the risk spectrum, I think it is nearly always a good time to buy shares in National Grid. This is one of the most solid income stocks on the FTSE 100, supported by its regulated earnings, while exposure to North-Eastern US energy market gives it a bit of buzz.
The 5.3% yield is only covered 1.2 times but this is less of an issue with utilities, as their earnings are more secure so they can pay out more of them. National Grid’s shares are valued at 15.6 times earnings, pretty much in line with the long-term average.
Supermarket chain Sainsbury’s has just reported a 29% drop in first-half profits to £376m as grocery prices rocket and consumer incomes plunge. However, last week’s results got a positive reception, as group revenues rose 4.4%.
I expect Sainsbury’s to continue struggling, as the cost-of-living crisis drags on and German discounters Aldi and Lidl continue to grab market share. Yet I am relatively confident about its dividend. This is now the main reason to hold the stock, and management will be reluctant to cut it.
I’m hoping that won’t be necessary, anyway, as its attractive 6% yield is covered 1.9 times by earnings. Trading at just 8.6 times earnings, many of the challenges Sainsbury’s face are in the share price.
Dividend investors spoilt for choice
Aviva’s shares have finally come alive after years of going sideways, bouncing 12% in 12 months. It’s the dividend that matters here, though, and the stock currently yields a whopping 8.8%, nicely covered 1.5 times by earnings.
The Aviva share price doesn’t exactly look expensive, either, trading at 7.5 times earnings. It is not the most dynamic stock on the FTSE 100, but I would still want it as a cornerstone of my portfolio. Today’s entry price looks attractive to me.
Finally, I’d like to add a commodity stock to my list of stocks to buy for sustainable income, and I’m plumping for Anglo American. The mining sector has picked up in recent days, as hopes grow that China is finally easing its Covid lockdowns.
The upcoming global recession could squeeze demand for metals and minerals. Yet I’m not too worried, given that Anglo American’s 8.4% yield is covered 2.5 times, and the stock is valued at a dirt-cheap 4.8 times earnings. Anglo American is well worth its place on my list of best FTSE 100 dividend income stocks to buy today.
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Harvey Jones holds shares in Persimmon. The Motley Fool UK has recommended Sainsbury's. 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.
Motley Fool UK 2022