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I think it’s worth tucking these FTSE 100 income stocks into your ISA

If you are hunting for income stocks to include in your ISA, I think it’s worth looking beyond the FTSE 100’s most discussed income shares to the lesser-cover parts of the market. That’s why I’m profiling what I believe are two FTSE 100 hidden income stocks today.

Market leader

Equipment rental group Ashtead (LSE: AHT) might not be the most exciting business around, but it gets the job done. As more firms have tended to rent rather than buy equipment outright over the past five years, the company’s sales and profits have grown substantially.

Revenue has increased at a compound annual growth rate of 22%, and net profit has surged. Analysts believe the business will report earnings per share of 173p for 2019, up from just 50p for 2013.

The company has been able to expand so rapidly by using a combination of both organic and bolt-on growth. Select acquisitions have helped Ashtead expand in new markets, like the US, without having to take on too much risk. By acquiring already established businesses, management doesn’t have to spend heavily to try to gain market share. Doing deals allows the firm to enter a market and then use its global size to improve margins and customer offering. This strategy seems to be paying off — as the numbers show.

As earnings have more than tripled over the past five years, Ashtead’s dividend to investors has expanded at an average rate of 35%. Considering this growth, even though the stock might not look that attractive as an income play today — it only supports a dividend yield of 2% at the time of writing — if the distribution continues to grow as it has done since 2014, investors buying today can look forward to a dividend yield of 4% by 2023. 

As the dividend is covered 4.5 times by earnings per share, the company has plenty of room to continue to increase the distribution and then some without having to worry about facing a cash crunch. That’s why I think this hidden dividend stock is worth considering for your ISA today.

Making a comeback

The other FTSE 100 dividend stock I’m profiling today is Micro Focus (LSE: MCRO). I’ll admit I haven’t always been optimistic about the outlook for this group. The botched integration of HP’s Enterprise business, which it recently acquired, put me off the company for some time.

However, recently the deal has started to pay off and it now looks as if Micro Focus is back in business. The stock has nearly doubled from it’s low printed in March 2018, and City analysts now expect it to report earnings growth of almost 29% in 2019 and just under 10% in 2020.

Analysts are also expecting a substantial increase in the company’s dividend for 2019. They’ve pencilled in a total distribution of $1.04, which gives a dividend yield of 4.1% at the current price.

On top of the regular dividend, the company has also informed investors that it’s planning to return the majority of the proceeds from the sale of its SUSE business — around $2.1bn, or £1.6bn at current exchange rates — implying a special dividend yield of nearly 20% this year.

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