The Motley Fool

2 of the safest FTSE 100 dividends for your ISA

ISA’s are one of the best places to save your money. With an extensive array of assets to choose from, and with gains and income sheltered from the tax man, ISAs should be an essential part of every investors’ wealth management strategy. 

The biggest benefit offered by an ISA is probably the protection of any investment income from tax. This advantage is especially beneficial for higher rate tax payers, although now the new dividend tax rules have come into force, almost every investor can benefit by using an ISA to shield dividend income from the tax man. 

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

With this being the case, dividend stocks are by far the best ISA investments, companies such as Unilever (LSE: UL) and National Grid (LSE: NG) both of which have a long history of rewarding shareholders. 

Lower can be better

It may seem odd suggesting Unilever as a top dividend stock, but the company has all the traits of such a business. Indeed, at the time of writing, shares in Unilever support a dividend yield of 2.9% and the payout is covered 1.5 times by earnings per share. Compared to the FTSE 100 average dividend yield of around 3.5% this payout is not that appealing, but when it comes to dividend longevity, the lower the yield, the better. 

Over the years Unilever has always used a conservative dividend policy to reward investors. Management is trying to walk the fine line of paying out enough to keep investors happy but, at the same time, holding enough cash back to support business growth, which over the long term, is better for dividend growth and sustainability. 

For example, if the company hits City forecasts for growth over the next two years, between year-end 2018 and 2012 earnings per share will have grown a total of 54%, while the per share dividend payout will have expanded by 61%. 

As long as management continue to reinvest in the business, there’s no reason why Unilever’s current level of dividend growth cannot continue. 

High payout, low growth 

Unlike Unilever, National Grid pays out the majority of its income to investors and while this means the firm’s shares support a yield of 4.5%, over the past five years the per share payout growth has been sluggish. Over the five years to 31 March 2016, the payout expanded by 10%. 

Still, as an income investment, you can’t really go wrong with National Grid. The firm owns the majority of the UK’s electricity infrastructure, so its never likely to have any competitors. This means cash flows are stable and predictable, which is great news for dividend investors, as cash flows are unlikely to contract.

To put it another way, National Grid’s earnings are extremely predictable, and it’s unlikely the company will suddenly be forced to cut its payout due to a contract cancellation or low-than-expected sales. That’s why I think the company is the perfect dividend stock. 

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.