Forget the Cash ISA. I like these FTSE 100 dividend stocks that yield 6%!

I think these FTSE 100 (INDEXFTSE: UKX) income champions can wake up your savings.

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Today, the best Cash ISA on the market offers a minuscule rate of interest of just 1.4%, which does not even cover inflation.

As a result, I think you’d be better off investing a portion of your money in FTSE 100 income stocks, instead of leaving it to languish at that low rate.

One of the stocks I think could be a great place to invest your cash in is mining giant BHP (LSE: BHP). Only a few years ago, BHP was struggling with high levels of debt and falling commodity prices. However, over the past few years, management has pulled off a fantastic transformation. The group has become a cash machine. Debt has fallen and shareholder returns have exploded.

Following this transformation, BHP has become one of the most attractive income stocks in the FTSE 100. 

Record dividends

Last month BHP announced a 2% increase in profit for its 2019 financial year. This was slightly below analysts’ expectations, but strong cash generation allowed the company to declare a record full-year dividend of $0.78 (64p) per share. Following this payout, the group will have returned $17bn to shareholders in 2019, a return of roughly 15%. 

BHP might not be able to return 15% of its market capitalisation again next year, but its dividend yield is expected to come in at a market-beating 6.8%, according to City analysts. With $8bn of capital spending planned and cash flow from operations estimated at $17bn, it looks as if the company will have plenty of cash left over to return to investors. 

Business transformation 

Commodities giant Glencore (LSE: GLEN) is another FTSE 100 income champion that I think could boost your income generation. Just like BHP, over the past few years, Glencore has been restructuring its operations. Net debt has fallen from $52bn in 2013 to $34bn at the end of 2018 as the firm has sold off assets and prioritised cash generation. 

The group has also been building out its mining business. When it went public in 2011, Glencore was primarily a commodities trader. This business is much more cyclical than getting rocks out of the ground and requires a lot of capital. That’s one of the reasons why the enterprise has three times more borrowing than BHP, even though the latter is three times the size of the former.

In 2011, the earnings before interest, tax, depreciation and amortisation split between the group’s mining and trading business was around 50:50. Last year mining accounted for just 16% of total EBITDA. 

I think this transition makes Glencore a much more attractive income stock. At the time of writing, the City is predicting a dividend yield of 5.6% for the company next year. The payout will be covered 1.3 times by earnings per share. On top of this, earnings are expected to expand 40% in fiscal 2020, which puts the stock on a forward P/E of 9.8. That’s a relatively undemanding multiple for this global commodities trading house in my view. 

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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