I’m searching for the best FTSE 100 stocks to buy for long-term passive income. Here are two dividend giants I’ll buy when I have extra money to invest.
National Grid
Sensible dividend investing isn’t just about finding stocks with the biggest short-term yields. This is why I’m considering National Grid (LSE:NG) for my portfolio.
Should you invest £1,000 in Barratt Developments right now?
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Keeping the power grid up and running is an essential task that isn’t affected by broader economic conditions. This allows the company — which also has a monopoly on maintaining the UK’s infrastructure, I add — to reliably grow profits over the long term.
Latest financials last week underlined the resilience of National Grid’s operations. It grew pre-tax profit 4% in the 12 months to March, to £3.6bn, even as the domestic economy stalled and high inflation remaimed. This in turn meant it raised the annual dividend 8.8% year on year, to 55.44p per share.
City analysts expect the shareholder reward to keep rising despite the gloomy economic outlook. This leaves the company with decent yields of 5.2% and 5.3% for these corresponding years. There are bigger yields out there, sure. But these readings sail past the 3.7% FTSE index average.
Maintaining pylons, substations and other critical infrastructure is an expensive business. And this can take a big bite out of National Grid’s profits. Capital expenditure at the firm rose 15% last year to £7.7bn. Yet on balance this is still a top stock to buy for rock-solid dividend income.
Barratt Developments
Housebuilder Barratt Developments (LSE:BDEV) is more vulnerable to wider economic conditions. When unemployment rises and people feel the pinch demand for new homes can crater.
The near-term outlook for this FTSE 100 firm is more perilous than usual today, too. Rising interest rates — which currently stand at 4.25% and could even breach 5% later this year — are putting buyer affordability under severe pressure.
But I’m still considering increasing my holdings in Barratt today. Okay, the business is expected to slash the dividend in its new financial year beginning in July. This pushes a 6.5% for the current year to 4.6%. But yields still beat the FTSE average.
And at the moment there’s a great chance the business will meet broker expectations. Predicted dividends for this year are covered 2 times by anticipated earnings. This is in line with the widely regarded safety benchmark of 2 times and above.
Dividend cover falls to 1.7 times next year, but Barratt has a healthy balance sheet that could help it to pay big dividends even if earnings disappoint. The firm recently reiterated its net cash expectations of £900m at the end of June.
City analysts expect Barratt to start hiking dividends from financial 2025, too, as conditions in the homes market likely improve. So the yield improves to an excellent 5.6%.
The UK’s housing shortage is poised to persist for years to come. And this means Barratt will likely deliver market-beating passive income over the long term.
