The Motley Fool

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

Image source: Getty Images

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.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

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.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.