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Have £2k to invest in your ISA? 2 FTSE 100 dividend stocks I’d buy today

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As I write, there are just 10 trading days left before the 2019 ISA deadline. If you haven’t used up your annual £20k allowance, then there’s still a short time left.

One of my goals for my Stocks and Shares ISA is to gradually build up a collection of dividend shares I won’t ever need to sell. In this article, I’m going to look at two companies I’d be happy to include in my ‘forever’ portfolio.

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The stock Warren Buffett couldn’t buy

My first choice is consumer goods group Unilever (LSE: ULVR). This is a classic Warren Buffett type of stock — strong brand names, high profit margins and a track record of strong cash generation and stable returns.

You may remember that the US billionaire tried to buy Unilever back in early 2017. He wanted to combine it with US rival Kraft Heinz, but met with a hostile reception. Both Unilever’s management and its investors agreed that the group was likely to deliver more attractive returns as an independent business.

Buffett’s problem is he has to invest billions in order to move the needle. That’s not an issue for most of us. This is why I believe it makes sense to put money into a stock that Buffett wanted to buy, but couldn’t.

Things are changing

Although Buffett and his partners 3G Capital didn’t manage to buy Unilever, this surprise bid approach jolted the Anglo-Dutch group’s management into action. They’ve since made many of the changes that 3G was planning to improve shareholder returns.

This year’s results showed the effects of these changes. Underlying operating profit margin rose by 0.9% to 18.4%, while earnings per share rose 5.2%. These increases may seem modest, but for a business that sells more than €50bn of goods each year, I think they’re pretty impressive.

This strong performance has left Unilever stock trading on 20 times 2019 forecast earnings, with a 3.3% dividend yield. I believe this could be a fair price for such a profitable business. Unilever’s dividend has risen by an average of 8% per year since 2013. Forecasts suggest this pace will be maintained. I rate the shares as a buy.

This 6.3% yield could help you retire

Unilever’s 3.3% dividend yield is below the FTSE 100 average of 4.4%. I think that’s acceptable for a dividend that’s growing much faster than inflation. But I’m also keen on owning some shares with above-average yields, as long as I think they’re sustainable.

One high yield stock I would like to own is Legal & General Group (LSE: LGEN). The savings and insurance group has a track record of steady growth, impressive profit margins and strong cash generation. Shareholders have been rewarded with a dividend that’s doubled since 2013.

This income growth hasn’t come at the expense of safety. Analysts expect Legal & General’s 2019 dividend to be covered 1.8 times by forecast earnings. I see that as a good level of cover for a business of this kind.

Shareholders are expected to receive another 7% pay rise this year. With the shares trading on 8.6 times forecast earnings and offering a 6.3% yield, I’d be a buyer.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. 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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