Best FTSE 100 dividend stocks in June 2023

The FTSE 100 index has seen a volatile start to the year, driven primarily by external factors, as 82% of the revenue generated by FTSE 100 companies comes from overseas. Factors such as rising geopolitical tensions, global inflation, increasing commodity prices, and tightening monetary policy have all impacted on the index's performance. The ongoing Ukraine War and Sino-US tensions have also contributed to the volatility.

Furthermore, rising corporation tax and the end of the super-deduction have led several top UK companies to consider listing abroad, viewing the UK a less friendly environment for investing. However, the index remains 2.8% higher than at the start of the year, as investors seek the safety of its defensive dividend stocks.

A recent survey conducted by consultancy BDO shows that output growth in the UK reached its highest level in eight months in April, with a production index of 99.8. This growth was primarily driven by the services sector, which generates roughly two-thirds of the country's GDP.

And despite earlier warnings of a recession from the Bank of England, stronger household spending has lifted the economy away from its bleak forecasts. In addition, expected figures for the first quarter of this year are anticipated to show a 0.1% increase in gross domestic product (GDP), which could help the country avoid a technical recession in the first half of 2023.

However, British factories have experienced limited growth due to 11 consecutive interest rate rises from the Bank to 4.25% and flimsy global supply chains, causing BDO's manufacturing output index to experience its worst performance in almost three years. Meanwhile, the services index has experienced its best improvement since January 2022.

The Consumer Price Index (CPI) inflation rate still stands at 10.1% — including food price inflation of 19.7% — surpassing the expectations of many analysts. With the base rate already at 4.25%, Goldman Sachs is pricing in a potential increase to 5% soon, and if inflation remains high, further increases cannot be ruled out.

And while the Office for Budget Responsibility predicts a decline in inflation to 2.9% by the end of the year, this is just seven months away. Overall, the UK's economic performance in 2023 has been fairly mixed, making it challenging to identify the best FTSE 100 dividend shares to invest in next month.

Best FTSE 100 dividend stocks

1. Persimmon (LON: PSN)

Persimmon shares have fallen by 35% over the past year to 1,342p as the UK’s largest housebuilder is hit by cost-of-living concerns, rising mortgage rates, and recessionary fears.

The FTSE 100 housebuilder saw strong FY22 results, which displayed a rise in group revenues from £3.61 billion to £3.82 billion. Pre-tax profits were also up to just over £1 billion, with new build completions up from 14,551 in 2021 to 14,868 in 2022.

Nevertheless, if mortgage rates are likely to remain higher for longer – as evidenced by current swap rates – it is likely that new build values and demand could wane towards the second half of 2023.

Persimmon is planning to maintain its FY22 dividend yield of circa 14% for FY23. However, earnings per share (EPS) have fallen 7.2% per annum in the last five years, and the Persimmon share price may hinge on the new-build transaction outlook.

Housing market data is presenting a mixed picture — with recent figures form Nationwide and Halifax seemingly opposed — though this may be simply because the two lenders serve different customer bases. The recent RICS residential market survey for March seemed to make the case for falling demand, sales, and lower house prices, but the institution was hopeful that the arrival of the traditionally busier spring season could reignite the market.

But given the balance of risk to reward, the current 12.7% dividend yield looks could be attractive.

2. Legal & General (LON: LGEN)

Despite Legal & General shares falling by 9.6% over year-to-date to 228p, the company now boasts an index-beating dividend yield of 8.5%.

Outgoing CEO Nigel Wilson — while unenthusiastic about the UK’s near-term economic prospects — is enthusiastic about the company's diversified and highly synergistic business model, which continues to deliver significant benefits.

Legal & General's balance sheet is strong and highly resilient, with the crucial Solvency II coverage ratio standing at 240%, a sizeable increase from 187% in 2021. In March's FY22 results, operating profit rose by 12% to over £2.5 billion, with a return on equity of 20.7%. The full year dividend also rose by 5% last year to 19.37p.

Over the longer term, it’s worth bearing in mind LGEN's strong market position. The FTSE 100 business has over 10 million customers and exceptionally deep-seated brand recognition, meaning it should be able to grow market share even in the highly competitive financial sector. In particular, it is perfectly placed to benefit from the aging populations in its key markets, as they increasingly turn to pensions, annuities, and equity release products.

3. Rio Tinto (LON: RIO)

This FTSE 100 miner has seen its shares rise by 33% over the past five years to 5,004p and continues to boast an 8.1% dividend yield. However, Rio Tinto shares have fallen significantly after full-year results in late February, which showed that it generated only $16.1 billion in net cash from operating activities, a 36% fall from the record set in FY21.

Nevertheless, it remains a dividend machine, returning $8 billion for the full year, representing 60% of total underlying earnings. CEO Jakob Stausholm notes that Rio is ‘investing for the future, doubling our stake in the Oyu Tolgoi copper-gold project in Mongolia through the acquisition of Turquoise Hill Resources, progressing the Rincon Lithium Project in Argentina and reaching milestone agreements that underpin the long-term success of our Pilbara iron ore business.’

Like Shell, Rio is intrinsically tied to global demand, most importantly for iron ore, which itself is dictated by Chinese demand — and again, there is varied data looking forward.