2 stocks paying me passive income in 2023

When I pick stocks for my passive income portfolio, it’s not just a case of looking at a company’s dividend yield in isolation – although that’s important. I delve beyond the headline numbers to see if businesses have a reliable track record of dividend growth and benefitting shareholders with payouts during economic downturns.

Additionally, I like to diversify my stock market holdings across different sectors. By doing so, I limit my risk of being heavily exposed to any company or industry. Hopefully this means I can rely on a passive income stream from at least some positions if any individual company cuts or suspends its dividend if it runs into difficulties.

With that in mind, let’s explore both FTSE 100 dividend stocks I have.

British American Tobacco

At British American Tobacco In the last month, the BATS.LS share price changed to +12%. The fall has pushed the stock’s dividend yield to 7.84%, which is higher than the Footsie average.

There are risks associated with investing in tobacco companies, of course. Governments are imposing ever-increasing taxes on flammable products and regulatory threats to their business models abound. That said, the recent sell-off in British American Tobacco stock seems unfair, in my opinion.

Although the company’s tobacco share is on average in 2022, there are efforts to diversify the business. Annual revenue growth of 37% in new category products, such as vapor and oral nicotine, is encouraging. The business expects the new category division to be profitable by 2024 – a year ahead of target.

In addition, the company owns shares in 13 cannabis companies. That’s bigger than any other tobacco giant. Germany plans to legalize recreational use next year, following similar moves in Canada and the US. This is a rapidly growing market, offering British American Tobacco growth opportunities beyond traditional cigarette sales.

With a relatively low price-to-earnings ratio of 9.73 and a bumper dividend, I hope to count on British American Tobacco shares for a big passive income stream in the coming years.

Tesco

At Tesco (LSE:TSCO) share price is down 6% over 12 months, but supermarket shares have enjoyed strong upward momentum since October. Currently, the company offers a 4.36% dividend yield.

Britain’s biggest grocery business also faces challenges. Food inflation is putting pressure on Tesco’s margins and competition in the sector is hotter than ever due to an ongoing price war between established supermarkets and German discount chains Lidl and Aldi.

However, Tesco claims a reasonable market share of 27.5%. What’s more, in its latest financial results, the supermarket maintained its FY 22/23 guidance of £2.4bn to £2.5bn in retail operating profit and retail free cash flow of at least £1.8bn.

Tesco’s focus on improving customer service is another positive feature. The company has expanded its same-day delivery service Duh to 1,000 Express stores, exceeding the original target by 200. It also builds partnerships with UberEat. The ambition to secure a leading position in the market in terms of service quality encourages in a sector where convenience is important for consumers.

Although not without risk, Tesco’s growth prospects look promising to me. This is another stock that will have an important place in your passive income portfolio for 2023 and beyond.