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Forget Bitcoin and the Cash ISA! Here are 3 dividend stocks I’d buy instead

Look, I can see the temptation. Early investors in Bitcoin became billionaires and that kind of get-rich-quick dream is one we all share, but I think the moment has passed.

Think shares

At the other end of the risk spectrum, lies the Cash ISA. I can see the attraction here too. Your money is safe, the interest is free of tax. Yet even the best easy access Cash ISA only pays 1.45% a year, while you have to lock your money away for five years to secure 2.3%. You can get far more tempting income from household name blue-chip FTSE 100 stocks like these three, although with more risk.

My first choice is Legal & General Group (LSE: LGEN). This £16.5bn giant now offers a forecast dividend yield of 6.5% a year, with cover of 1.8. It’s a rising income too, with management increasing its dividend by 7% last year.

Legal high

L&G is now more of an asset manager than an insurer, with more than £1trn under management across its investment and pensions business. That does leave it vulnerable to stock market storms, but it has the scale and balance sheet strength to battle through. The group is also profitable, posting a 10% rise in operating profits to £1.9bn last year.

L&G’s share price performance has been sluggish, but it has sprung into action lately, climbing 22% in the last three months, so it may finally be fulfilling its potential. Yet it still trades at a bargain price of just 8.4 times forward earnings.

Big bank

Asia-focused bank HSBC Holdings (LSE: HSBA) is a massive operation, with a market cap of £125bn. And that’s despite a 10% drop in the share price in the last six months as investors have fretted about the impact of the US-China trade war, and the possibility of an emerging markets meltdown.

So there is risk here, but that’s always the case with stocks and shares. What matters is what you get in return. In this case, your reward comes in the shape of a forecast yield of 6.4%, with cover of 1.4. It should continue to be well covered by earnings, which are forecast to rise 14% in 2019, and another 4% in 2020.

HSBC is also available at a knockdown price, currently 11.3 times forecast earnings (15 times is generally seen as fair value). It has a price-to-book value of just 0.8, which also suggests undervaluation. I would buy now and hold for the long term, while letting the dividends roll up.

More income

My final pick is British American Tobacco (LSE: BATS). This is another FTSE 100 giant, with a market cap of £73bn. And once again, the stock market tremors of the last year have left it trading at a discount, in this case just 9.8 times earnings.

That’s a bargain price, even taking into account the long-term decline of smoking in the West and ultimately, developed markets too. British American Tobacco has been particularly hard by the latest US regulatory crackdown on the sector, which covers menthol and e-cigarettes, but it still posted revenues of £25.5bn last year, up 25.2%, while profits from operations rose 45.2% to £9.3bn.

That should continue to support its generous forecast yield of 6.7%, covered 1.5 times by earnings (which looks set to grow 5% this year and 7% next).

Five Income Stocks For Retirement

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings. 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.