I’m leaving the smallest possible amount of money in cash, and investing most of my long-term wealth in FTSE 100 stocks instead. Unfortunately, too many people are doing the opposite, by letting their long-term wealth erode in cash getting a near-zero return.
New figures from Charles Stanley show how investors get a much better return from shares. If you had invested £10,000 in global markets in 2010 the money would now be worth £30,742. In a savings account, it would have grown to just £11,230. I’m hoping the following two FTSE 100 stocks will make my money work far harder than any savings account.
While many FTSE 100 stocks scrapped their dividends during the early stage of the pandemic, Edinburgh-based fund manager Standard Life Aberdeen (LSE: SLA) made a virtue of standing by its shareholder payouts. Chairman Sir Douglas Flint acknowledged that many of its small shareholders rely on a dividend cheque, and felt a duty to pay them if possible. Better still, the company was in a position to do so. It has £1.7bn of cash reserves, recently bolstered by the sale of its £237m stake in Indian financial services firm HDFC Life.
I’d buy this dividend hero today
That gives me the confidence to believe that Standard Life Aberdeen will remain a reliable income payer. The forward yield is currently 6.1%. However, payouts could be reduced in future, as the yield is only covered 0.8 times by projected earnings. Even if it is trimmed back, this top FTSE 100 income stock should still offer attractive income.
The Standard Life Aberdeen share price has recovered steadily since March, despite recently reporting a 30% drop in first-half profits. Assets under management fell due to market declines and customers exiting for safer assets, but this has been an exceptional year. If the vaccines do their work, 2021 should be better. Whenever the recovery comes, I believe Standard Life Aberdeen will still give me long-term income and growth.
Another FTSE 100 financial services stock, insurance consolidator Phoenix Group Holdings (LSE: PHNX) offers an even more generous forward yield of 6.6%. Better still, it is covered 1.8 times by earnings. It has also recovered strongly from this year’s stock market crash, climbing 50% from its March lows.
I’d check out this FTSE 100 stock too
Earlier this month, Phoenix reported beating its cash generation target for 2020, after generating £1.71bn compared to £707m in 2019. It already had a strong balance sheet, but has increased its Solvency II surplus by another £600m in the three months to 30 September. It may raise a further £578m amid reports that buyers are circling its Irish and German operations.
Phoenix isn’t even expensive, trading at just 8.4 times forward earnings. That gives me another reason to buy it rather than leaving my money idling in cash. Yes, this has been a tough year for FTSE 100 dividend stocks, but as these two financial services companies show, the income is still out there.
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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.