3 top FTSE 100 dividend shares to buy for a new 2024 ISA?

How much work does it take to pick three FTSE 100 stocks to lay down the start of a new ISA? It might be less than we’d think.

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Starting a new Stocks and Shares ISA today, what would I want? I’d start with FTSE 100 stocks. And I’d look for three key things.

I want good dividends. Ideally, the bigger the better, but the prospect of long-term rises in the dividend amount is vital.

Valuation, valuation

Next I’d look for fair valuations. They won’t be the cheapest stocks. But then, billionaire investor Warren Buffett famously said “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price“.

And I’d want some diversification. Starting with three picks, I’m not going to get a lot of that. But I can diversify more as time goes on.

And to start, I’d at least avoid similar stocks. That means only one financial stock, which would rule out some of today’s top dividends.

Top FTSE 100 yield

I’d pass over Vodafone, whose 11% yield will be cut in half next year. That takes me to Phoenix Group Holdings (LSE: PHNX) with a forecast 10.5%.

Phoenix is in the insurance business, which can be a very volatile sector. So I really would only buy for the very long term.

Saying that, Phoenix acquires and manages closed life and pension funds. That might be toward the less risky end of the insurance spectrum. It’s still hostage to the ups and downs of the stock market, though.

The price-to-earnings (P/E) is a bit wild right now, but forecast to settle to around 19 by 2026. It’s not the best measure of this sector, mind.

But free cash flow looks set to soar. And for my money, the outlook and the dividend would more than offset the risk.

Captive audience

Next comes British American Tobacco, on a 9.5% dividend forecast. There are non-financial things that might put me off. But for today, I’m only looking at financials.

As well as the big yield, analysts have the P/E over the next few years marked down around seven. That’s only about half the FTSE 100’s long-term average.

The future for tobacco is the biggest risk. But a 9.5% dividend from a stock on such a low valuation… it’s tempting.

Telecoms cash

I have to skip through a couple more financials, and tobacco firm Imperial Brands, to get to the next biggest yield from a stock in a new sector. It’s BT Group, on a predicted 7.1%.

I’ve always been wary of BT’s huge debt, which looks like a big risk to me. And I do think it’s helped push the share price down 45% in five years. But BT might be starting to pick up in 2024.

If the shares have bottomed out, and BT can keep paying the big dividends, why not just take the cash and not ask too many questions? I’m warming to the idea.

A starter ISA?

Overall here, I’ve cast my eye over just seven FTSE 100 stocks (including the ones I skipped), and it hasn’t taken me much research time. Starting a new ISA today, I might just buy these three. And then look for more dividend stocks in other sectors to add later.

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.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco P.l.c., Imperial Brands Plc, and Vodafone Group Public. 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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