FTSE 100 stocks are the perfect investments for your ISA due to their size and dependability. What’s more, many of the constituents of the index support dividend yields that are extremely attractive in the current low-interest-rate environment.
Aviva (LSE: AV) is one such opportunity. Over the past few years, it has undergone an enormous transformation. After reporting a slump in profitability for 2011, management has been working hard since to return the group to growth. It has succeeded in this quest, and for 2017 the company is expected to report a pre-tax profit of £2.6bn, up more than 100% from 2016’s reported figure of £1.2bn.
As profits grow, Aviva’s dividend is also set to tick higher. City analysts have pencilled-in a per share payout of 26.2p for 2017, up from 23.3p for 2016. If the company hits projected City forecasts for growth, this payout should be covered twice by earnings per share for the year. At current prices, the payout is equal to a dividend yield of 4.9%.
Secure dividend
It looks as if Aviva’s dividend is safe for the foreseeable future. You see the company is a long-term savings and investment provider offering, alongside traditional savings accounts, annuities and life insurance.
To be able to offer these products, management has to adopt a long-term outlook, it has to be sure Aviva will still be around in 50 years time when savers come to withdraw their money for retirement. This is good news for investors as it means management is unlikely to push through any changes to the business that could boost earnings in the short term but jeopardise growth further along the line. Further, by managing money on a long-term basis for clients, Aviva has some certainty over its ongoing cash flows earned from asset management.
All in all, Aviva looks to be the perfect long-term dividend investment.
Room for payout growth
Compared to Aviva, Shire (LSE: SHP) isn’t a traditional dividend stock. At the time of writing shares in the company support a dividend yield of 0.6%. However, the payout looks to be extremely safe and management’s conservative dividend policy means there’s plenty of room for the firm to hike its payout.
Indeed, Shire’s current dividend payout of 29p is covered 14 times by projected 2017 earnings per share of 400p. With the payout easily covered more than 10 times by earnings, Shire’s dividend could be one of the safest around. What’s more, the group is still reporting steady growth, so there’s a chance for both income and capital rises for investors in the company.
Shire’s pre-tax profit is set to hit £4.4bn for 2017, up from £480m for 2016. City analysts have pencilled-in further earnings growth for 2018 with pre-tax profit expected to rise to £5.1bn as revenue is set to lift to £13.2bn from the £12.3bn expected for 2017. As earnings continue to grow, it’s likely Shire’s management will look to return extra cash to investors. This is one company that has plenty of dividend potential.
