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Forget the cash ISA! This FTSE 100 dividend stock should set you up for a significantly wealthier retirement

I’ve always been convinced that a cash ISA is a very poor way to invest, and as UK inflation has been rising (currently standing at 2.7%), even the best cash ISA available at the moment can’t match it.

That means, if you trust your hard-earned pennies to a cash ISA, you are actually losing money in real terms! What’s the point of seeking tax savings on your investments if, when you come to cash them in, you’ll be able to buy less with them than when you started?

The only sensible form of ISA, in my view, is a shares-based one (including the Lifetime ISA). And I think it is especially valuable the longer you invest your cash — so it’s ideal, possibly together with a SIPP, for anyone investing long-term for their pension.

Which shares?

But what should you put into a shares ISA? Primarily I like top FTSE 100 dividend stocks with strong defensive characteristics — boring, safe, profitable.

One question I like to ask myself whenever I make a new investment is, if I could only have one share in an ISA for the next 10 years, would I buy this one? I don’t actually recommend putting all your money into one stock, and I’m a big champion of diversification (providing you don’t overdo it), but I do think it helps focus the mind on the safety aspect of an investment.

I see oil giant Royal Dutch Shell (LSE: RDSB) as the one I’d most likely go for if I had to make such a choice, and I do think it’s one of the best stocks you can buy for long-term returns.

Cash is what counts

The big beauty for me is dividends, and the potential yields from Shell just got better. The Footsie took a battering during this week before recovering a bit of its losses, but Shell shares ended the week still around 5% down.

That boosts forecast Shell dividend yields to around 5.7%, and if you buy now you will effectively lock in that level of income for the years to come. That assumes the dividend will be sustained, but I see it as probably one of the safest on the market.

The oil price is back up at $81 per barrel as I write, and it’s even recently peaked above $86. At those levels, Shell is expected to bring in more than enough earnings to cover its predicted dividends (with cover of approximately 1.5 times this year, rising close to 1.8 times next year).

Rising dividends soon?

That looks comfortable to me, and I can’t help feeling we could soon be back to seeing rising dividends from Shell. But what gives me extra confidence is how Shell adjusted its dividend to cope with the oil price crisis… or rather, that it didn’t.

No, the company stuck to its long-term dividend policy while remaining confident that oil prices would recover in the long term.

Shell is a strongly cash-generative business in a long-term industry, with a long-term approach to paying good dividends. You surely can’t get much better than that, can you?

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Alan Oscroft has no position in any of the shares mentioned. 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.