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

Roland Head suggests a Warren Buffett pick from the FTSE 100 (INDEXFTSE:UKX).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Investing Articles

I’d buy 1,784 shares of this FTSE 100 stock to target £350 of monthly passive income

Muhammad Cheema takes a look at how British American Tobacco shares, with a dividend yield of 10.1%, can generate a…

Read more »

White female supervisor working at an oil rig
Investing Articles

1 ex-FTSE 100 stock that I think will get promoted soon

Jon Smith flags up an energy stock that used to be in the FTSE 100 and currently has strong momentum…

Read more »

Shot of a young Black woman doing some paperwork in a modern office
Investing Articles

With an 8% dividend yield, I think this undervalued FTSE stock is a no-brainer buy

With an impressive yield and good track record of payments, Mark David Hartley is considering adding this promising FTSE share…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£9,500 in savings? Here’s how I’d try to turn that into £1,809 a month of passive income

Investing a relatively small amount into high-yielding stocks and reinvesting the dividends paid can generate significant passive income over time.

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

Dividend star Legal & General’s share price is still marked down, so should I buy more?

Legal & General’s share price looks very undervalued against its peers. But it pays an 8%+ dividend yield, and has…

Read more »

Investing Articles

Dividend shares: 1 FTSE 100 stock to consider buying for chunky shareholder income

This company’s ‘clean’ dividend record looks attractive to me and I’d consider buying some of the shares to hold long…

Read more »

Investing Articles

3 of my top FTSE 250 stocks to consider buying before April

Buying undervalued UK shares can be a great way to generate long-term wealth. Here, Royston Wild reveals a handful on…

Read more »

Ice cube tray filled with ice cubes and three loose ice cubes against dark wood.
Investing Articles

Just released: our 3 top income-focused stocks to buy before April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »