MENU

I would dump the cash ISA and pick up these 7%+ FTSE 100 dividend yields

Today, the best cash ISA available on the market offers an interest rate of just 1.5%. In my opinion, it isn’t worth investing your money at this appallingly low rate of return.

I would much rather put my money to work in blue-chip stocks, mainly because right now, you can pick up a blue-chip stock with a dividend yield of more than 7%. 

Today I’m going to explain why I believe it is worth being greedy with these high-yield income stocks while other investors are fearful. 

Safety and bricks and mortar

Over the past 24 months, shares in some of the UK’s largest homebuilders have slumped as investors have rushed to exit the sector due to concerns about the impact Brexit may have on the housing market

We already know that home prices are starting to come off the boil after years of explosive growth so we cannot overlook these concerns entirely. 

According to online property portal Rightmove, sale prices for newly advertised properties on its platform increased by just 0.2% year-on-year in February, the slowest rise since 2009.

However, the fundamentals of the property market indicate demand for new homes will remain robust even if prices continue to decline. Indeed, while property price growth has slowed to the lowest since 2009, with wages growing at a rate of more than 3% per annum, the affordability of houses is improving at its fastest pace since 2011 according to further Rightmove analysis. 

On top of this, the government’s controversial Help to Buy scheme was extended until 2023 last year, which should ensure that the demand for first-time buyer properties remains robust in the near term. What’s more, the UK’s still chronically under-building new homes.

All of the above points to the conclusion that demand for the new properties built by companies like Barratt Developments (LSE: BDEV) and Taylor Wimpey (LSE: TW) is not going to evaporate anytime soon.

And with this being the case, I reckon these stocks could be fantastic income investments after recent declines.

Market-beating income

Both Barratt and Taylor currently support market-beating dividend yields. City analysts believe shares in Barratt will yield 7.8% for 2019. Meanwhile, analysts have pencilled in a yield of 9.8% for Taylor.

There are few if any other companies that offer the same kind of dividend yields and attractive fundamentals. Both of these companies have cash-rich balance sheets and the ever increasing demand for new homes in the UK tells me that cash generation is not going to come to a sudden halt.

Even if I’m wrong, and the bottom falls out of the UK property market, I think these two companies will remain attractive income investments. A 50% reduction in distributions would leave Barratt yielding 3.9% and Taylor yielding 5.5%, compared to the maximum of 1.5% interest available on the best cash ISA today, these returns are still highly attractive.

So, that’s why I would dump the cash ISA and take advantage of other investors’ panic to snap up shares in these high-yielding homebuilders.

Are You Prepared For Brexit?

Following Brexit, fear and indecision could hurt share prices in the coming months. That's why the analysts at the Motley Fool have written a free guide called "Brexit: Your 5-Step Investor's Survival Guide". To get your copy of the guide, click here now!

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Rightmove. 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.