Why I’d dump the Cash ISA and buy these FTSE 100 stocks yielding 6%

These FTSE 100 (INDEXFTSE:UKX) income champions offer much better returns than cash, argues Rupert Hargreaves.

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According to my research, the highest Cash ISA interest rate available on the market today is 1.5%. Two providers offer this level of income, Coventry Building Society and Virgin Money, but both accounts come with drawbacks.

The Coventry Building Society product includes a fixed annual 0.35% bonus payable until the 31st of August 2020. After this, the interest rate received will drop. Meanwhile with Virgin’s product, you can only make two withdrawals per calendar year, (that includes closing your account) so you could end up losing access to your money if you dip into your savings too much.

I’m not interested in either of these products because their yields of 1.5% just aren’t enough. Instead, my money is invested in FTSE 100 blue-chip stocks. Today I’m going to look at two of my favourite income stocks which support dividend yields of 6%.

Global income

My first pick is mining giant BHP (LSE: BHP). If you’re worried about what the future holds for the UK economy, then an investment in this company is certainly worth considering.

BHP is the world’s largest diversified mining group. It has operations across the globe and supplies vital commodities to virtually every country on the planet.

Mining is a relatively dull business, but it’s vital to the global economy. What’s more, companies can’t enter the industry whenever they feel like it. It would take tens or possibly hundreds of billions of dollars to recreate the company’s global operations, and decades of building. In other words, BHP is highly likely to remain the world’s leading commodities producer for many years to come.

The company’s size also means unrivalled profit margins. Last year, the group’s operating margin hit 37.3%, making it not only one of the most profitable companies in the mining industry but also in the London market.

Management has decided to return the bulk of this cash to investors, which suggests shareholders are in line for a dividend of $2.02 per share this year, and $1.49 for 2020, giving a dividend yield of 8.4% and 6.1% for each year, respectively. That’s why I’m recommending the stock as an income buy today. 


I’m also highlighting National Grid (LSE: NG) as an income play. At the time of writing, this stock supports a yield of 5.9% for fiscal 2020, rising to 6% for 2021.

Investors have been deserting this business since 2016 as the chances of a Corbyn-led Labour government have increased. If he gets into power, Corbyn is promising to nationalise utility companies like National Grid for the good of the country.

In reality, I think the chances of this are remote because National Grid is an international business, with substantial US operations, which contributed around 50% of group operating profit last year.

If Labour does decide to confiscate these assets, it’s unlikely to sit well with US politicians and could spark an international incident. To put it another way, I reckon splitting up the firm and nationalising part of the business will be too complicated and is unlikely to be pursued no matter what Corbyn might say.

That’s why I think now might be a good time to snap up shares in the critical infrastructure provider while they offer such an attractive level of income.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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