I’d buy these 2 FTSE firms yielding 7.5% in a Stocks and Shares ISA today

Today’s low share valuations boost the appeal of investing for income using a Stocks and Shares ISA

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I reckon now is a great time to go shopping for dividend-paying shares to pop inside a tax-free Stocks and Shares ISA. Some might think that’s odd, given the uncertainty affecting global markets, but I don’t see it that way.

I would never buy a stock that I did not intend to hold for a minimum of five years, and ideally several decades.

Over such a lengthy timespan, today’s troubles will be forgotten (as most stock market dips soon are). With luck, these stocks should still be paying me generous dividends.

I’d load up my Stocks and Shares ISA today

FTSE 100 firms Anglo American (LSE: AAL) and Taylor Wimpey (LSE: TW) both yield around 7.35%, and are available at dirt-cheap valuations.

High dividends like these can ring alarm bells, as they may indicate underlying problems at the company. I don’t think this applies with these two. Their revenues look solid to me.

Earlier this year, Anglo American announced a record $2.1bn final dividend. This boosted shareholder returns to an impressive $6.2bn for 2021, as higher commodity prices delivered record profits.

The forecast yield for this year is 7.5%. This looks sustainable given that it is covered 2.2 times by anticipated earnings.

The Anglo American share price is up 15% over 12 months, helped by strong rough diamond sales at its De Beers operation, particularly in the US. As China reopens, this should boost demand for iron ore and coal, too.

The obvious threat is that the world falls into recession, as central bankers tighten monetary policy to curb inflation. That would hit commodity demand and prices. However, today’s low valuation of just 5.5 times earnings suggests I would not be overpaying if I popped Anglo American inside my Stocks and Shares ISA today.

I think housebuilder Taylor Wimpey would fit snugly beside it. The obvious risk with buying stocks in this sector is that rising interest rates will bring the era of rampant UK house price growth to a sudden end.

House price growth will almost certainly slow as mortgage rates rise (and a good thing too), but I do not anticipate a crash.

FTSE 100 income stocks tempt me

Most existing homeowners are protected by fixed-rate deals, at least for a year or two. Buyers still face intense competition, due to housing shortages.

In April, Taylor Wimpey delivered an optimistic update, announcing that it was trading in line with full-year expectations. Sales were “strong” and cancellation rates “flat”. Its order book now totals almost £3bn.

Another risk is that the UK slumps into stagflation, and the group’s labour and material costs rise faster than house prices. Management is working hard to keep costs down, and remains focused on delivering “enhanced shareholder returns”.

The Taylor Wimpey share price has delivered little in the way of growth for a decade, so the attraction here is the dividend. The forecast payout is now 7.8%, comfortably covered 2.1 times by earnings.

Today’s low valuation of 6.5 times earnings completes the argument for me. I would buy this inside my Stocks and Shares ISA, too.

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 doesn't hold any of the shares mentioned in this article. 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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