Forget gold and the Cash ISA! I’d build a £1m portfolio around these 2 dirt-cheap FTSE 100 stocks

Harvey Jones says these two FTSE 100 (INDEXFTSE:UKX) shares offer hugely generous levels of income that more than make up for recent slow share price growth.

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The FTSE 100 index may have slipped lately, but it remains a great place to invest for your long-term wealth. Building a balanced mix of top UK blue-chip stocks and reinvesting your dividend income for growth, year after year, can put you on the road to building a £1m portfolio.

You won’t get there by leaving money in a Cash ISA where you’ll be lucky to get interest of more than 1-2% a year. The gold price may be rising at the moment but it doesn’t pay any income at all.

I would prefer to buy the following two stocks, which offer hugely generous income streams ranging from 6% to nearly 9%, and are available at bargain valuations.

Royal Dutch Shell

Despite the push towards renewable energy, oil still drives the global economy. I’m as worried about climate change as anybody, but I don’t see its influence changing for years.

Anglo-Dutch oil giant Royal Dutch Shell (LSE: RDSB) pays one of the most reliable dividends of all, as its payout famously hasn’t been cut since the Second World War. It’s a proud record the FTSE 100 major is keen to maintain, which gives you a degree of security even if the oil price continues to fall from today’s $60-or-so for a barrel of Brent crude.

The Shell share price performance has disappointed lately, down 12% in the last year, but this has the benefit of driving up the value of the dividend. The stock currently offers a forecast yield of 6.3%, covered 1.3 times by earnings. That’s three or four times the interest rate on a Cash ISA.

Its falling share price brings another benefit for far-sighted investors. It leaves Shell trading at a dirt-cheap valuation, now just 11.6 times forward earnings, compared to the index average of 17.33 times.

Shell isn’t just an oil company, it’s also pumping money into gas, chemicals, bio-fuels and low-carbon electricity, as part of the wider energy transition. Doubtless, there’ll be bumps along the way, but if the dividends keep rolling in, who cares?

Aviva

Insurance giant Aviva (LSE: AV) is another FTSE 100 stalwart I would buy today and pop into a portfolio with the aim of making £1m over the longer run.

Just like Shell, and many companies right now, recent share price performance has been disappointing – Aviva’s is down 27% over the last year. Yet once again, this benefits investors who like picking up bargain stocks at discounted valuations.

It’s even cheaper than Shell, trading at just 6.2 times forward earnings. That’s a real bargain basement price. The dividend is even more astonishing, as it offers a forecast income of 8.7%, covered a healthy 1.9 times by earnings.

Now there is a danger that management could cut the payout, which is starting to look too generous, but we can still expect the stock to offer a healthy income for years to come.

Too many investors focus on share price growth when buying stocks for their portfolio. Yet, in a world of near zero interest rates, dividend income heroes are the main attraction.

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.

Harvey Jones has no position in any of the shares 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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