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2 FTSE 100 income stocks yielding 7.4%+ I’d buy for an ISA

Time is running out to use your stocks and shares ISA allowance for the 2018/19 tax year.

If you are looking for ideas on where to invest your money, today I’m going to take a look at two FTSE 100 income stocks that I am considering adding to my own ISA.

Income champion

Homebuilder Taylor Wimpey (LSE: TW) currently supports one of the highest dividend yields in the FTSE 100.

At the time of writing the stock yields 10.1%, and it doesn’t look as if this is going to go away anytime soon. Indeed, as my Foolish colleague G A Chester recently pointed out, in February, Taylor reported record revenues for 2018 with profit margins and return on equity at “terrific levels” to borrow Chester’s phrase.

The company also informed investors that 2019 has got off to a “very positive start,” which seems to suggest that the firm is well on track to meeting City growth forecasts for the year. At the time of writing, analysts expect the enterprise to earn 20.5p for 2019 rising slightly to 21p for 2020.

That said, some analysts are concerned we are at the top of the cycle when it comes to housing in the UK, and a fall in demand could lead to a significant reduction in earnings for Taylor. While this is always going to be a risk, I think the company’s outlook is reasonably bright for the next two or three years as demand for housing in the UK remains robust particularly at the first time buyer end of the market, which is being supported by the government Help to Buy scheme — a substantial contributor to Taylor’s profitability last year.

Management is so confident the company won’t see a downturn anytime soon they have already declared that the business will distribute £600m of cash to shareholders in 2019, subject to shareholder approval.

Two years of special dividends

I think all UK homebuilders are currently undervalued, and that’s why I am also eyeing up Barratt Developments (LSE: BDEV) for my ISA today.

Barratt and Taylor have a lot in common. They both have a cash-rich balance sheet, high returns on equity, (thanks to the booming UK housing market) and are committed to returning all excess profits to investors. This year analysts believe the company will return a total of 44p per share, giving a dividend yield of 7.4% on the current share price.

We are only half way through Barratt’s 2019 financial year, but it already looks as if this is going to be a record fiscal period for the company.

Back in February, the business reported an increase in revenues for the first half of 7.2% and an improvement in the group’s operating profit margin of 1.3% to 19.2%. Profit before tax jumped 19.1%. Most importantly for dividend investors, at the end of December 2018, the company’s cash balance totalled £388m and management also reiterated its intention to pay out special dividends amounting £175m in November 2019 and £175m in November 2020.

With the company already committed to distributing £350m pounds to shareholders over the next two years, excluding its regular dividends, I think Barratt is a buy.

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Rupert Hargreaves owns no share 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.