These FTSE 100 stocks offer market-beating passive income. But should I buy them for my UK shares portfolio today?
WPP
Advertising giant WPP (LSE:WPP) has seen its share price sink 9% in 2023 as marketing budgets have sunk and trading conditions become more challenging. It’s a decline that leaves WPP’s forward dividend yield at a market-beating 5.3%.
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At current levels the company actually offers solid all-round value for money, in my opinion. As well as carrying that large yield, WPP trades on a rock-bottom price-to-earnings (P/E) ratio of 7.9 times.
Weaker spending from the technology sector has weighed heavily on the company of late. In fact it forced the agency to cut sales forecasts in August, and WPP’s share price has fallen further since.
But results from YouGov on Tuesday (10 October) provide some hope that the market may be recovering. The polling expert said that it has “seen sales momentum returning in the technology sector” more recently.
A similar observation from WPP when third-quarter results come out this month could lead to a sharp share price rebound. Regardless, I still think the company is a top dip-buy.
I don’t think the firm’s low valuation reflects its exceptional long-term outlook as the digital advertising sector rapidly grows. The company has been investing heavily in this area in recent years, a strategy that City analysts think will underpin solid annual earnings growth through to the end of 2025.
This also leads to expectations of strong dividend growth, which in turn pushes the yield on WPP shares as high as 7.9%.
Dividends are never guaranteed. But high dividend cover of 2.4 times over the next three years suggests the company is in great shape to meet broker forecasts. I’m aiming to buy its shares when I next have spare cash to invest.
Lloyds Banking Group
A hefty share price decline also leaves Lloyds Banking Group (LSE:LLOY) with big dividend yields through to 2025. At 43.4p per share, the company has shed 6% of its value in the year to date.
Like WPP, City analysts expect shareholder payouts at the firm to steadily rise through to 2025. So a large 6.4% yield for this year rises to 8% by the end of the period.
In addition, the dividend forecasts for Lloyds shares also look very achievable. Predicted payouts are covered between 2.4 times and 2.7 times by expected earnings during the next three years.
However, I’m not planning to buy the Black Horse Bank for my portfolio today. While there’s a good chance WPP’s fortunes could steadily improve from here on in, Lloyds faces an uncertain future as high interest rates sap UK economic growth, cool the housing market and drive up loan impaiments.
Worryingly the International Monetary Fund has warned that the Bank of England could keep its borrowing rate above or around 5% until 2028 too. Higher rates boost the difference between what banks charge borrowers and pay to savers. But evidence is mounting that higher rates are having a net negative effect on the banks.
I think Lloyds’ share price could continue sliding for some time. So despite those large dividend yields and low P/E ratio of 5.8 times I’d rather buy other FTSE 100 stocks for passive income.
