Looking around at the big yields on offer from so many FTSE 100 dividend shares, I can’t help thinking about how I’d start a new dividend portfolio in May. Here are five, which I think would give me decent diversification, and some sustainable passive income.
I would definitely start with a FTSE 100 bank. It would be between Lloyds and Barclays, both on forecast dividend yields of 5% with strong cover. The two have very different approaches. Barclays remains global in outlook, with a strong investment banking arm. Lloyds, meanwhile, is focused on UK domestic banking, mortgages, and rental. Both face risks through serious economic uncertainties, but I’d buy at least one of them.
High-yield dividend shares
I would have to include a housebuilder among my chosen dividend shares. Taylor Wimpey would probably be the one, with a forecast yield of 7.5%. I know I’d be facing risk, with mortgage interest rates rising and an economic squeeze hitting people’s pockets.
But the share price has fallen this year. And I think the wider housing shortage makes it a long-term buy.
I can’t help thinking that now is a good time to buy Tesco shares. The UK’s biggest groceries retailer is on a forecast dividend yield of 4.1%. That’s not among the biggest, but it is likely to be well covered. And I would prefer reliable long-term dividends over one-off big payouts.
The retail squeeze that’s being spurred by soaring prices seems like the biggest risk right now. But it’s helped push the Tesco share price down to a price-to-earnings multiple of about 12. I think that’s good value.
Long-term dependability
My selection of dividend shares would have to include National Grid. We’re looking at a forecast yield of around 4.2%. Again, that’s not a big one. But again, it’s one that I consider dependable. National Grid has pretty clear earnings visibility, and that enables it to pay a high proportion of earnings as dividends.
The changing face of the energy business could cause some hurt, especially to the gas network. But electricity flows the same no matter how it is sourced. Yes, National Grid would be a must for my new dividend portfolio.
Unilever would make up the fifth of my dividend shares. A 12-month share price fall of 15% has pushed up the forecast dividend yield to around 4%. And I reckon it’s likely to be one of the most reliable long-term dividends in the FTSE 100.
Unilever will probably feel some economic squeeze. But I think its business is likely to be one of the more resilient. Unilever’s brands cover a wide range of essentials, which consumers will need to keep on buying.
Expanding my dividend investments
I am very unlikely to actually buy all of these in May, as I just won’t have five investment-sized lots of cash in one month. And I already own Unilever and Lloyds shares anyway. Still, those others may well make their way into my ISA as the year progresses and I accumulate more cash to invest in dividend shares.