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2 FTSE 100 shares with 8% yields I’d buy for an ISA today

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The volatile stock markets of the last year have been an exciting place to invest. But where money is concerned, I don’t want too much excitement. That’s why I prefer to keep a significant chunk of my cash invested in high-yield FTSE 100 shares, inside my Stocks and Shares ISA.

Over the last year, these companies have continued to provide me with a reliable cash income even when the market has been in freefall. The two FTSE stocks I’m looking at today both offer 8% dividend yields. Both of them held or increased their payouts over the last year.

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Better than gold

I’m not keen on investing directly in gold. It never grows, costs money to store, and provides no income. On the other hand, a good quality gold miner with low production costs can deliver both growth and a cash income.

My pick in the gold sector is FTSE 100 share Polymetal International (LSE: POLY). This Russian gold miner has seen its stock rise by 35% over the last year, thanks to a strong gold price.

Polymetal benefits from quite low mining costs, with all-in sustaining cash costs (an industry metric) of just $874/ounce in 2020. The company’s average selling price for gold was $1,797/oz over the same period. This pushed the group’s after-tax profits up by 83% to $1,072m.

Shareholders will receive just over half this amount in dividends, with a total payout of $1.29 per share. Brokers covering Polymetal expect the dividend to rise to $1.65 per share in 2021, giving a forecast yield of almost 8%.

Of course, there is no way of predicting how the gold price might change in 2021. A sharp drop in the price of gold could force Polymetal to scale back its payout.

Mining stocks don’t always provide the most stable dividends. But in my experience, buying miners with strong production and low costs can be a good way to generate additional income.

Polymetal shares are trading on around eight times 2021 forecast earnings, with an 8% dividend yield. I’d be happy to buy more at this level.

I think this FTSE 100 share is too cheap

The second high-yield dividend share I’d buy for my ISA today is tobacco giant British American Tobacco (LSE: BATS). Obviously, this stock carries some ethical concerns which will rule it out for some investors.

Indeed, ethical concerns are increasingly keeping big institutional investors away from this sector. There’s also the risk that global smoking rates could decline to a level where the business becomes much less profitable.

Those risks probably won’t go away. But tobacco companies have been fighting against these trends for years. BATS has emerged as one of the winners, in my view. It’s the largest tobacco company in the world. In 2020, sales of nearly £26bn generated an operating profit of £10bn.

Strong brands such as Dunhill, Lucky Strike, and Rothmans help BATS to increase its market share and apply regular price increases. This helps to offset the annual decline in global smoking rates.

For me, BAT’s big attraction is that it generates high levels of surplus cash, much of which is distributed to shareholders as dividends. In my view, this is one of very few FTSE 100 shares which can offer a sustainable 8% dividend yield.

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Roland Head owns shares of Polymetal International. 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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