The FTSE 100 has received a lot of focus over the past week. The volatility in the index has been high. After dropping like a stone at the start of the week to around 6,850 points, it has managed to bounce back swiftly to current levels at 7,000. Such swings offer opportunities to buy stocks for further potential appreciation. However, it also allows me to snap up dividend shares at attractive prices. So what are some of the best FTSE 100 dividend stocks for me to buy now?
Recent events providing opportunities
Initially, the swing in the FTSE 100 this week might not seem to correlate with dividend income that much. However, the movement in the share price of a company within the index has a large impact on the dividend yield. This is because the calculation of the dividend yield depends on two things — the share price and the dividend per share.
The dividend per share for most companies doesn’t change that often, and usually only when results are released. So the key driver on a day-to-day basis for the dividend yield calculation is the share price.
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For example, let’s say I thought one of the best FTSE 100 dividend stocks was Company X that had a dividend yield of 4% last week. If the share price fell 5% during the past week, then the yield has now increased to 4.2%. This might not sound like much of an increase. But when I’m looking to invest thousands of pounds, this makes enough of a difference for me to want to take advantage of it.
By investing regularly each month instead of everything in one go, I can benefit from falls in the FTSE 100. This should help me to get the best dividend stocks at an enhanced yield.
Finding the best FTSE 100 dividend stocks
In terms of the best areas to find dividend stocks right now, I have my eye on two sectors. The first is utilities.
Shares like SSE and National Grid have almost the same dividend yield of 5.41%–5.42%. I think this yield looks attractive for passive income, especially when looking at the risks involved. I think utilities offer a lower risk investment than other sectors.
The infrastructure needed to enter the market limits potential competitors. The customer base already generating revenue might go elsewhere, but ultimately are unlikely to end the relationship due to not needing the gas, electric, or water services anymore. Therefore, the constant demand for the services provided make it appealing to me when looking at future dividend potential.
Another sector housing some of the best dividend stocks right now is financial services. Phoenix Group and Legal & General both have yields in excess of 6.5% currently.
Both firms have a good track record of cash generation. This is appealing for an income investor. Further, as the large financial services companies are unlikely to be classified as growth stocks, paying out generous dividends is a way of keeping shareholders happy and onboard.
I am aware that even though I think the above mentioned companies offer me good value, dividends can be cut in the future. I can’t control this, so will diversify funds into multiple dividend shares to try to reduce this risk.
