Are these the best FTSE 100 dividend stocks to watch in October 2023?

The FTSE 100 has experienced a volatile 2023, starting the year at 7,554 points, before breaking the symbolic 8,014 points barrier in February, and then falling to as low as 7,258 points during August.

The index now stands at 7,499 points after yet more volatility — widely expected given the FTSE’s overweighted composition of oilers, miners, and banks. For context, FTSE Russell data shows that 82% of FTSE 100 companies’ income is derived from overseas.

The next couple of weeks will be critical to deciding where the Bank of England may go regarding monetary policy. Unemployment figures, GDP data for July, and August’s CPI inflation statistics are all to come before the next Monetary Policy Committee meeting.

And perhaps more importantly, the Office for Budget Responsibility is compiling economic forecasts which will inform the Chancellor’s Autumn Statement on 22 November. For context, the March budget forecast was that the Bank of England base rate would peak at 4.3%, and it’s already at 5.25%. Ten-year UK borrowing rates were forecast to be an average of 3.6% in March, and they reached 4.8% last month.

And the OBR had at the time stated that a 1% point rise in borrowing costs would end up ‘wiping out headroom’ the Chancellor might want for tax cuts. In a pre-election era, one where the government must now fork out the cash to repair or replace school buildings while also hoping to deliver some tax cutting, it continues to be an uncertain environment.

The Chancellor even told Bloomberg that an increase in fiscal headroom was ‘unlikely’ given that inflation has remained stickier than predicted in March — and noted that ‘when you're trying to bring down inflation, you have to be really careful not to pump extra money into the economy.’

Regarding inflation, while CPI dipped from 7.9% in June to 6.8% in July, the Bank thinks rising petrol prices will push this crucial figure back up to 7.1% in August. However, Governor Andrew Bailey told MPs last week that inflation should still fall ‘markedly’ by the end of 2023, with rates ‘much nearer now to the top of the cycle.’

Nevertheless, MPC member Catherine Mann has warned that she would ‘rather err on the side of tightening.’ If CPI inflation does indeed rise the day before the MPC meeting, a 25 basis points rise in the base rate may become likely — particularly when you consider the revised GDP figures, showing the UK has recovered from the pandemic far faster than previously through.

As an aside, £9 billion packaging titan Smurfit Kappa plans to merge with rival WestRock and leave the London Stock Exchange for the NYSE — adding to the UK’s market woes.

But of course, where there’s uncertainty, there’s opportunity.

Best FTSE 100 dividend shares to watch

1. Glencore

Glencore's half-year adjusted core earnings were perhaps disappointing, falling by more than 50% to $9.39 billion, a far worse result than average city analyst estimates.

However, the dividend yield remains at 8%, indicating a potentially attractive entry point for a company that may be a little oversold. As CEO Gary Nagle notes, this period ‘may not be the bonanza that everybody was expecting, but China is not all that bad,’ referencing the country’s increased governmental economic support promises as it fights creeping deflation.

Further, the company is gearing up for the next bull cycle, especially in the critical minerals space. It’s made a $22.5 billion bid for Teck’s coal assets, and has increased interests at various companies while simultaneously selling off 20 non-core assets.

2. M & G

M&G is fast becoming a popular FTSE 100 dividend stock among some investors. The savings and investment provider plans to generate operating capital of £2.5 billion by the end of 2024, and yet still boasts a double-digit dividend yield of 10%.

In Q1 results in June, CEO Andrea Rossi enthused that ‘M&G started the year building on our strong momentum from 2022. At the full-year results we identified three priorities for the Group: maintain financial strength through capital discipline, simplify the business, and deliver profitable growth focusing on Asset Management and Wealth. I am pleased to say we have made good progress on each of those fronts and are on track to deliver on our ambitious targets.’

Encouragingly, the company saw £1 billion in net client inflows in the wholesale asset management division — an excellent result in a high rate environment. Having returned close to £1 billion to shareholders via buybacks and dividends, the all-important Solvency II coverage ratio still stands at an impressive 200%, and the company may report another excellent set of results later in September.

3. Imperial Brands

Imperial Brands — despite potential ESG considerations — remains a popular FTSE 100 dividend stock, with a dependable dividend currently yielding 8%. Tobacco companies are highly defensive companies which are also typically highly cash generative given the addictive nature of nicotine.

While traditional tobacco products may be declining in some markets, the company is investing heavily in new categories including vaping. Half-year results saw ‘next generation product’ net revenue rise by 19.8% year-over-year, with this acceleration ‘driven by product launches across categories.’

Meanwhile, operating profits rose by 28% year-over-year to £1.5 billion, mostly as the comparative period included the costs of exiting Russia. However, revenue also increased slightly by 0.3% to £15.4 billion, while volume falls in Germany and the UK were offset by rising sales in Australia, Spain, and the US.

While net debt is rising due to increasing investment in its next generation products, the dividend rose by 1.5% — and Imperial remains on track to complete its promised £1 billion share buyback program this year.

Remember, past performance is not an indicator of future returns.