3 big income shares I’d buy for my ISA today

Roland Head looks at three big-cap income shares he’d buy with dividend yields of 6% and more.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Various denominations of notes in a pile

Image source: Getty Images.

With UK inflation at 7% and rising interest rates, I’m looking for income shares that can generate high yields while protecting my capital.

Today, I’m going to look at three UK dividend stocks I’m keen on, two of which I already hold in my Stocks and Shares ISA.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

£1bn spare cash

FTSE 100 housebuilder Barratt Developments (LSE: BDEV) expects to report at least £1bn of surplus cash when its financial year ends on 30 June. This should provide comfortable support for the group’s forecast dividend yield of 7.8%.

Indeed, my sums suggest that Barratt could maintain its dividend for nearly three years with this level of cash. Of course, that’s unlikely to be necessary. By 1 May, Barratt was fully sold out for the year ending 30 June.

In total, Barratt has forward sales of £4.4bn on its books. Its new home build rate and sales reservation rate are both around 10% higher than a year ago.

The big risk here is that inflation and rising interest rates could see the UK fall into recession. That could slow new home sales and put pressure on prices.

However, the Barratt share price has already fallen by 35% over the last year. That’s left the stock trading in line with its book value, on just six times forecast earnings.

I think there’s a margin of safety here, so I’d be happy buying the shares for income.

The best UK bank?

Close Brothers Group (LSE: CBG) isn’t a household name like Lloyds or Barclays. But unlike its famous peers, this FTSE 250 merchant bank didn’t cut its dividend during the financial crisis. Although the payout did drop in 2020, it’s already returned to pre-pandemic levels.

This group specialises in commercial lending and motor finance. It also has a stockbroking business, Winterflood Securities. This proved useful during the pandemic, when volatile stock markets led to bumper profits from share dealing. This helped to offset a temporary dip in lending profits.

Like Barratt, Close Brothers is exposed to the risk of a UK recession, which could lead to loan losses and a slump in new lending.

However, Close is far more profitable than the big high street banks and has been in business for 144-years. With a forecast dividend yield of 6%, I’m tempted to top up my holding.

I can’t ignore this 6.9% yield

Tobacco stocks have a reputation as good income shares. British American Tobacco (LSE: BATS) offers a tempting 6.9% dividend yield that’s covered by earnings. The group’s dividend payout hasn’t been cut for at least 20 years and continues to look very safe to me.

Of course, investing in tobacco carries ethical issues, plus the real risk that sales could be more heavily restricted in the future.

However, BATS is ahead of some rivals in terms of adopting lower-risk products. Sales of non-combustible products such as vapes rose by 51% to £2,178m last year. Management expects this figure to reach £5bn by 2025 – around 20% of total sales.

The BATS share price looks cheap enough to me to reflect the risks of investing in tobacco. The stock currently trades on just nine times forecast earnings and offers a jumbo 6.9% dividend yield. I’m happy to buy and hold the shares in my ISA at this level.

Should you invest £1,000 in Lloyds right now?

Before you consider Lloyds, you’ll want to hear this.

Motley Fool UK's Director of Investing Mark Rogers has just revealed what he believes could be the 6 best shares for investors to buy right now… and Lloyds wasn’t one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 shares that are currently better buys.

All you need is an email address to get started

Roland Head has positions in British American Tobacco and Close Brothers Group. The Motley Fool UK has recommended Barclays, British American Tobacco, and Lloyds Banking Group. 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.

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 considered, so you should consider taking independent financial advice.

More on Investing Articles

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

I bought these 4 cheap shares for a market recovery

After months of sitting on my hands, I've finally taken the plunge by buying four cheap shares. Of course, their…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

Here’s why I’m buying more shares in one of my best stocks to buy!

This Fool explains why he is planning on adding further shares of one of his holdings to boost his portfolio.

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

Just 6% of investment trusts make positive return in H1! What should I do?

The returns from investment trusts have so far disappointed this year. Here's why I plan to continue splashing the cash…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

Could this FTSE 100 stock be a bargain to buy and hold?

This Fool believes there are some excellent bargains to be had on the FTSE 100 and details one he is…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

Are these the best income shares to buy in 2022?

Andrew Woods wonders if he should add these two companies to his portfolio to create a consistent income stream.

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

At 41p, are Lloyds shares now too cheap to miss?

As interest rates rise, Andrew Woods asks if now is the time to load up on Lloyds shares.

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

2 dirt-cheap UK shares to buy right now!

Stock market volatility remains very high. This presents excellent opportunities for investors to buy mega-cheap UK shares like these two…

Read more »

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet
Investing Articles

Should I buy soaring Abrdn stock? Or am I too late?

Abrdn stock jumped 8% in Wednesday morning trading. The share price has tanked this year, so maybe its fortunes are…

Read more »