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I’m looking for the best FTSE 100 dividend shares to buy before this month’s Stocks and Shares ISA deadline. Should I add these popular income stocks to my portfolio?
Diageo
giant drinks Diageo (LSE:DGE) doesn’t offer the highest dividend yields out there. For the current financial year, the yield stands at 2.3%
This is some distance below the 3.7% average for FTSE 100 stocks. However, despite this, I still think it is a superior stock to buy for long-term passive income. In fact, this is a blue chip stock that I already have in my ISA.
You see, Diageo has a brilliant track record of dividend growth that few can match. It has increased the annual shareholder payment every year for more than 20 years. A growing dividend is important as it protects an investor’s wealth from the ravages of inflation.
It has a strong track record of growing earnings which, in turn, gives it the means to steadily increase dividends. This is partly due to the defensive nature of their operations. The demand for alcoholic beverages remains practically stable at all points in the economic cycle.
This robustness is also due to the popularity of beverages such as Captain Morgan Ron, guinness strong and smirnoff vodka. The huge sums Diageo spends on marketing give these products exceptional brand power, which in turn makes them essential purchases for many shoppers.
Diageo is a stock I hope I never sell. That’s despite the fact that increased abstinence could hurt earnings growth down the road.
Tesco
like Diageo, Tesco (LSE:TSCO) has formidable brand power. This is largely due to its popular Clubcard loyalty program. In addition to this, the FTSE company also has the best online grocery operation in the business.
These are factors that could cement its position as Britain’s largest retailer and deliver strong earnings growth. But I’m not convinced. This is due to the rate at which competition among supermarkets continues to grow.
Tesco’s market share continues to gradually erode as customers flock to discount chains Aldi and Lidl. The latest data from Kantar Worldpanel showed its market share fell further in the 12 weeks to March 19, to 26.9%. This was more than half a percentage point less than at the end of 2022.
It looks like the pressure will intensify as German discounters also rapidly expand their stores. Rivals’ heavy investment in their own online channels also poses a significant threat.
Also, Tesco’s appeal with consumers could deteriorate significantly as it makes changes to Clubcard. Starting June 14, shoppers will only be able to double the value of their accumulated points when they spend them with reward partners. At the moment, customers can triple the value of their points.
Clubcard has helped the company combat the threat of value chains better than traditional rivals such as Sainsbury’s. Changes here could hurt the grocery store’s brand with cash-strapped customers and speed their exit to cheaper retailers.
Tesco’s forward dividend yield of 4.1% is very attractive. But I still prefer to buy other FTSE shares to generate income. I think the retailer could struggle to raise dividends over the next decade as competition increases.
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