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I’d forget the cash ISA and pick up these 6%+ FTSE 100 dividend yields

With less than two weeks to go until the end of the 2018-19 ISA year, where are investors mainly stashing their cash?

For the 2017-18 year, almost 11m people invested in an ISA. But more then 70% of those were cash ISAs. I see that as a horribly wasted opportunity with interest on the typical cash ISA falling way short of inflation — and effectively guaranteeing you’ll lose money in real terms.

The average investment in a cash ISA was approximately £5,000, with twice that invested in the average Stocks and Shares ISA, which suggests that people with less to invest think they have too little to make investing in shares worthwhile.

But I reckon even as little as £500-£1,000 is enough to justify going for shares, especially with some of our top FTSE 100 companies offering such attractive dividend yields these days.

Essential services

Take energy supplier SSE (LSE: SSE) for example. Sure, it’s in a regulated industry, and there’s been intense competition from newcomers in recent years.

And that’s helped cause the SSE share price to lose 17% of its value over the past five years. But SSE pays big dividends, and they’d have added a healthy 30% to the value of an investment made five years ago, for an overall return of significantly better than the FTSE 100 as a whole.

What’s more, while the share price has been falling, the dividends have continued to grow. We do have a modest cut on the cards for the year to March 2020, which would help to correct an expected lack of cover by earnings for that year.

But even with that, we’re still looking at forecast dividend yields of 6.5%, which is more than four times the interest rate you’re likely to get from a cash ISA. There are some fears for a cut, but I can only see a small one at worst, and I see an attractive ISA candidate here.

Advertising

Advertising and media giant WPP (LSE: WPP) has seen its share price lose 50% over the past two years, partly down to a shift in the advertising business that’s led to a period of falling earnings.

The departure of founder and chief executive Sir Martin Sorrell, who was very much a hands-on boss who did things his own way, has hit confidence too. And there have been inevitable questions of whether the company can continue as a market leader without him at the helm.

I think it can. I see WPP as a fundamentally solid company that has the expertise and the financial clout to overcome short-term hiccups — even ones as painful as losing Sir Martin.

The current year could well be pivotal, with a 30% fall in EPS on the cards as new boss Mark Read gets to grips with a structural refocus.

Analysts expect WPP’s fortunes to level out in 2020, and the share price sell-off has pushed the WPP valuation down to forward P/E multiples of only around eight.

What’s more, the dividend is expected to remain stable, and would provide a yield of better than 7% — should forecasts prove accurate. And it would be covered around 1.7 times by predicted 2020 earnings, which looks good enough to me.

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Alan Oscroft has no position in any of the shares 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.