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I would dump the cash ISA and pick up Santander’s 6%+ dividend yield

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The fall in the Santander (LSE: BNC) share price over recent months means that the global bank now has a dividend yield of around 6.5%. That’s over 200 basis points higher than the FTSE 100’s yield, while it is 500 basis points greater than the return offered by a cash ISA.

Certainly, the company faces risks which could hold back its share price recovery prospects. However, what seems to be a sound overall strategy, as well as global growth potential, could mean that it delivers a successful turnaround. Alongside another large-cap stock which released results on Thursday, Santander could generate high total returns.

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Improving outlook

The stock in question is FTSE 100 insurance business RSA (LSE: RSA). Its full-year results were somewhat mixed, with its underlying performance being negatively impacted by higher weather costs and large loss challenges in Commercial Lines. In response, it is moving ahead with extensive underwriting action, with the company expected to report an improving performance in 2019.

Since the stock has fallen in value by 20% in the last year, it now has a dividend yield of around 6.6%. Dividends are expected to be covered 1.6 times by profit in the 2019 financial year, which suggests that there is scope for them to rise at a faster pace over the medium term. And with the stock’s bottom line forecast to rise by 12% this year, its price-to-earnings growth (PEG) ratio of 1 indicates that it may offer a margin of safety.

As such, RSA could prove to be a worthwhile growth, income and value opportunity. It could deliver impressive total returns compared to the FTSE 100 after what has been a relatively challenging year for the business.

Turnaround potential

As mentioned, Santander’s shares appear to have been negatively impacted by fears surrounding the global economy. Risks such as further import tariffs being put into place by major economies such as the US and China seem to have caused investor sentiment to deteriorate, while Brexit may also be causing continued challenges for the company in key markets.

The bank is investing heavily in digital growth, which could prove to be a major catalyst over the long term. It is also aiming to improve its competitive position in order to benefit from increased customer loyalty. This could create a stronger business in the long run, which is able to offer consistent profit growth.

With a dividend that is due to be covered 2.2 times by net profit in the current year, Santander’s income prospects appear to be relatively resilient. It is expected to grow its bottom line by 9% this year, which puts it on a PEG ratio of 0.9. This suggests that it offers a wide margin of safety. As such, it may offer an income investing opportunity as well as recovery potential that makes it more appealing than a cash ISA on a risk/reward basis.

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Peter Stephens 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.

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