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As I look for income stocks to buy, there are still plenty of good candidates for FTSE 100.
Here are two I'm looking at, especially since both will be ex-dividend next month.
Passive income powerhouse
International distributor Bunzl (LSE: BNZL) is one of the most consistent stocks in the UK market when it comes to capital returns. We're talking year after year about a consistent increase in gross profit.
Much of this depends on providing the kind of things businesses need on a regular basis. We are talking about food packaging, cleaning chemicals, and safety equipment.
While we can't assume this form will continue automatically, I would be surprised if it didn't. After all, the £12bn market cap company has continued to increase payouts in time epidemic!
In its last update (in September), the company raised its forecast for adjusted operating profit in 2024 due to the positive impact of acquisitions and demand for its brand products. In response, analysts at JPMorgan raised their price target to just under 4,000p on the stock, citing growth opportunities in the North American market, particularly in the grocery and foodservice sectors.
This all sounds good to me.
Is it worth the risk?
paid a dividend of 2.1 %. A standard FTSE 100 tracker fund will deliver more.
We also know that sellers can sometimes be (ironically) off in their guesswork. That growth may not materialize, especially if the US enters a recession.
Also, Bunzl shares have outperformed the UK's top tier over a long period of time – the only period on the horizon that matters to a Fool like me. Compounding that good-but-not-great harvest every year would increase the return even more.
I'm going to think about this for a while, especially since the rating now looks pretty crowded. Fortunately, the stock doesn't go on a dividend until mid-November.
The dividend aristocrat
Another way to increase the average yield of my entire portfolio would be to buy a large piece of tobacco Imperial Brands (LSE: IMB). Like Bunzl, it has been a veritable money machine for investors over the years. The difference is that its dividend yield is much higher. As I write, this stands at 6.6%!
Now, cash distributions like this tend to occur in businesses that aren't on a high growth trajectory. Given that tobacco use rates have been on the decline for decades now, this is undoubtedly true in Imperial's case.
Still, the company is doing everything it can to adapt to changing tastes and behaviors. For example, Imperial now expects 20%-30% revenue growth for its next products (eg, vapes) in FY24. This makes me suspect that this income stream looks very safe.
But how long?
There are, however, a few things I ponder.
The new(ish) UK government seems to be a little more motivated to reduce smoking in the UK than the last one. A few proposals – such as banning the sale of cigarettes to anyone born after January 2009 – could eventually become law. And there's only so long Imperial can keep raising prices to offset the decline in global tobacco use.
Like Bunzl, I will apply the rule again in a week or two. It goes ex-dividend on November 28.
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