Best FTSE 100 dividend stocks in March 2023

As winter turns to spring, it’s tempting to think that the worst of the UK’s financial uncertainty is behind us. The disastrous Truss-Kwarteng era mini-budget seems a hazy memory — despite warnings from the Bank of England’s Andrew Bailey to Lloyds of London’s John Neal that the UK has taken a serious hit to its hard-won financial reputation.

And while the Sunak-Hunt duo seem mildly uncharismatic, there seems to be at least a semblance of stability, much of which is feeding into the markets. Indeed, the FTSE 100 continues to set fresh record highs, and is now within touching distance of the symbolic 8,000-point watermark.

However, this supposed economic success is built on factors external to the UK. It’s worth noting that unlike the domestically focused FTSE 250, 82% of FTSE 100 companies’ income is derived from overseas, and the index is being supported by China’s decision to relax its ‘zero-covid’ policy and strong employment figures and falling inflation in the US.

With China’s relationship with lockdowns uncertain, a return to lockdown cycles cannot be ruled out. Nor can economic problems in the States, with Federal Reserve Chair Jerome Powell recently warning that the disinflationary process ‘has a long way to go,’ marking a break from the more dovish language of the past few weeks.

Domestically, there is some good news. Gas prices have come down drastically, and while energy bills are still expected to rise in April, energy costs should start to reduce going into the summer. It wasn’t too long ago that the idea of £7,000 annual bills was floating around the halls of Westminster.

Moreover, the Bank of England now expects that CPI inflation, having fallen from 11.1% in October to 10.5% by December, will fall to 5.2% by Q4 2023 and then dip towards the official 2% target during early 2024.

For context, the base rate now stands at 4%, and the markets are predicting it will peak below 5%. Bailey has now reduced his prediction that the UK will see a two-year long recession to just one year, while the National Institute of Social and Economic Research thinks the country may avoid a recession altogether — although warns it will not feel like it for millions of households.

Of course, the Bank has been wrong before — and the divisions between the hawkish and dovish members of the Monetary Policy Committee are becoming more obvious. Bailey himself remains ‘very uncertain’ about inflation’s rate of decline.

XpertHR analysis shows that employer salary increases are currently at a median of 6%, their highest in three decades. And OECD data shows that investment in the UK remains below its mid-2016 level, while the IMF has warned that the UK will fare worse economically than any other developed country in 2023.

Further, a combination of record economic inactivity among the over-50s — for various complex reasons — combined with seemingly endless strikes across multiple key sectors are conspiring to derail the government’s attempt to avoid recession altogether.

MPC member Catherine Mann recently delivered a speech in Hungary in which she argued against the prospect of playing ‘policy boogie’ in the fight against inflation, pointing to the ‘material upside risks’ of inflation sticking at higher levels than expected’ as the country reels from Brexit, the pandemic, and Ukraine War.

Specifically, Mann noted that ‘we need to stay the course, and in my view the next step in Bank rate is still more likely to be another hike than a cut or hold.’

Days later, fellow member Silvana Tenreyo told the Commons Treasury Committee that inflation was ‘pretty much guaranteed’ to fall this year unless there was a new ‘massive energy shock, or something that’s not on the cards’ and that interest rates were already ‘too high right now.’

Garnishing the cocktail, Chancellor Hunt will be delivering another budget within weeks, with Conservative MPs seemingly as split on fiscal policy as the MPC is on monetary. Accordingly, this all keeps selecting the best FTSE 100 dividend stocks more of an art than a science, though Legal & General and Glencore remain on the list as top picks.

Best FTSE 100 dividend stocks

1. Shell (LON: SHEL)

While Shell's directors are being personally sued for mismanaging climate risk, the company itself is now a profit-making machine, having posted its highest-ever annual profit a few days ago.

FY22 adjusted earnings came in at $39.9 billion, a huge rise over the previous record of $28.4 billion in 2008, and more than double the $19.29 billion earnt in 2021. The company has announced a $4 billion share buyback program to be completed by early May, and a 15% dividend share increase for the fourth quarter.

However, Shell is taking a $2 billion hit for the final three months of 2022 from the combined effects of windfall taxes in the UK and EU, and there is a risk that windfall taxes may increase in the UK as energy bills stay elevated and the government looks for popular sources of income despite the damage to investment stability that comes from constant tinkering with taxation. However, Shell only derives 5% of its income from the UK, so this would be unlikely to do much damage to profits.

Instead, the key dividend risks come from significant changes to supply and demand. Sadly, the Ukraine War seems no closer to a conclusion, while China’s government seems determined to remain out of lockdown. This leaves the potential global recession and possible demand destruction as the key long-term threat.

Up 22% over the past year to 2,467p, the company nevertheless has a price-to-earnings ratio of just 5.2.

2. Glencore (LON: GLEN)

With full-year results due next week, Glencore shares are up by 26% over the past year to 529p, with a dividend yield of 4.3% and a price ratio of just 5.3, less than half the FTSE 100 average.

The miner is diversified by both geography and metal type and could become one of the key beneficiaries of the proposed commodities supercycle. Indeed, Goldman Sachs predicts that commodities will rise by 43% in 2023, making them the best asset class in the year. Of course, Glencore is further advantaged by its market position as both trader and producer across its diversified portfolio of mining operations.

The bull case for iron and copper has been made time and time again; despite the predicted global recession, urbanisation, EVs, and the green energy transition will see demand for Glencore’s metals soar this year and beyond. Of course, global prices will also be dictated by wider macro events; whether demand falls if China reverts to lockdown cycles, or whether supply increases if the Ukraine War reaches a conclusion.

3. Legal & General (LON: LGEN)

Legal & General has long held a solid reputation as one of the most reliable FTSE 100 dividend stocks. The company has fallen by 11.1% over the past year, buy now boasts a tempting 9.4% dividend yield alongside a price-to-equity ratio of 7.5.

And with cumulative dividends expected to reach between £5.6 billion and £5.9 billion by 2024, the yield could rise even further. LGEN is also comparatively financially secure with a Solvency II capital ratio of between 225% and 230%.

In the long term, it’s worth bearing in mind LGEN’s fundamentals. The company has over 10 million customers and its strong brand recognition means it could grow market share even in the highly competitive world of finance, as aging populations in its key markets turn to pensions, annuities, and equity release products.

Some investors may worry that LGEN could suffer a similar fate to Direct Line, but while the two operate in the same sector, LGEN operates a far more diversified business. Full-year results are due on 8 March.

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* Based on revenue (published financial statements, October 2022)