The ISA deadline for the 2018/19 tax year is only a few hours away. If you are stuck for investment ideas, today I’m going to look at my two favourite FTSE 100 dividend stocks and explain why they deserve a place in your ISA.
First up there’s Admiral (LSE: ADM). This firm is probably one of the best-managed insurance businesses in the UK, and it shows in the group’s profit margin. Last year the company reported an operating profit margin of 37.7%, compared to the UK insurance industry average of 10.5%.
A strong focus on managing risk as well as reducing costs over many years has helped the company get to where it is today, and it doesn’t look as if this is going to change any time soon.
The UK insurance market is extremely competitive, which Admiral’s management knows all too well. So, rather than getting tangled up in a race to the bottom on price, chasing growth at the expense of profitability, the company has decided to branch out into other businesses. It recently launched Admiral loans, which has already lent out more than £300m, although it is not profitable just yet.
In addition, the group is also investing in its presence overseas. It has a large business in Italy, Spain and France as well as a presence in the United States. In aggregate, these businesses are still making a loss, but just like the loans business, I’m excited about their future potential. The number of international car insurance customers increased by 18% in 2018 to 1.22m and losses from the international division decreased by £13.2m. In 2017, Admiral’s international arm lost £14.3m. Last year the loss had improved to £1.1m indicating this business will start contributing to the bottom line in 2019 or 2020.
All of these growth initiatives are good news for the company’s dividend outlook. Analysts believe the firm will pay out 137p per share in 2019, giving a dividend yield of 6.1% and it seems to me as investors could see substantial dividend growth in the years following. That’s why I’ve added this stock to my ISA.
Bricks and mortar
Another FTSE 100 income stock I like is Landsec (LSE: LAND). This is the UK’s largest listed property company with a market capitalisation of £6.8bn.
Recently, the stock has come under pressure as investors are worried about the company’s exposure to the UK High Street. Rising retail bankruptcies are bad news for landlords who have to take the property back and might not find another tenant to take on the lease.
However, in my opinion, Landsec is relatively insulated from this trend. Virtually all of the company’s retail properties are located in central London, and while its retail parks and shopping centres are spread around the rest of the UK, overall, retail properties only make up around 40% of the mix. The rest is made up of hotels, London offices and shops in London.
As the values of London properties have remained relatively stable over the past two years, I do not think Landsec deserves to trade at its current discount to net asset value of 34%. As well as this discount, the shares also support a yield of 5.3%. A yield of 5.3% from central London property is too good to pass up in my opinion.
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Rupert Hargreaves owns shares in Landsec and Admiral Group. The Motley Fool UK has recommended Landsec. 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.