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1 FTSE 100 6% dividend stock I’d buy for my ISA today

The new ISA year has only just begun, but it’s never too early to start putting your cash to work. The sooner your money is invested, the sooner you should start to enjoy returns on your investments. Today, I want to look at two companies that have delivered very attractive shareholder returns in recent years.

A cash machine

My first pick is FTSE 100 newcomer Phoenix Group Holdings (LSE: PHNX). This insurance firm’s main activity is buying up so-called closed books of life insurance policies from other insurers and running them to completion. It’s a specialist business, but when done well it generates a lot of surplus cash for shareholder dividends.

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Phoenix generated £664m of surplus cash in 2018. Roughly half of this was returned to shareholders, giving the stock a dividend yield of about 6.5%. Shareholders can look forward to more of the same in 2019. City analysts expect a modest increase in the group’s payout, giving a forecast yield of 6.7% at the time of writing.

What about growth?

Although the Phoenix business is based on consolidating mature insurance policies, it’s not without growth. Last year saw Phoenix spend £2.9bn on Standard Life’s insurance business. This deal left the group with £226bn of assets under administration and 10m policies, providing attractive economies of scale.

Rapid growth is unlikely. But for investors wanting a reliable 6%+ dividend yield, I think Phoenix would be an excellent long-term buy. If I didn’t already own a large chunk of insurance stock, I’d certainly add these shares to my income portfolio.

Wizard returns from gaming glory

If you’re looking for a dividend stock with more exciting growth potential, Games Workshop Group (LSE: GAW) might be of interest. Shares in the FTSE 250 war gaming specialist have tripled over the last two years, as management has kept costs down and benefited from a surge in interest in the firm’s Warhammer games.

The shares are up by another 11% as I write, after the company confirmed that strong trading seen earlier in the year has continued. Full-year pre-tax profit is now expected to be about £80m, comfortably ahead of analysts’ estimates of around £70m.

Today’s earnings upgrade means that Games Workshop’s profits are now expected to rise by about 7% this year, compared to previous forecasts for a 7% fall.

Refreshingly honest dividends

Games Workshop chief executive Kevin Rountree isn’t your standard corporate boss. His statements are short, direct and avoid the PR waffle that most companies prefer.

This straightforward approach also extends to the company’s dividend policy, which is to distribute “truly surplus cash” to shareholders. Most companies used adjusted earnings — an artificial, non-cash measure — to calculate their dividend payouts. By contrast, Games Workshop simply returns spare cash it doesn’t need.

Thanks to a 30%+ operating profit margin and a debt-free balance sheet, this business generates quite a lot of spare cash. Today’s statement confirms a final 35p per share dividend for this year. This will take the total payout for 2018/19 to 155p per share.

At the last-seen share price of 3,690p, that gives the stock a dividend yield of 4.2%. I’d expect a similar payout during the year ahead. In my view, the group’s cash-backed yield and continued growth mean this stock remains a compelling buy-and-hold investment.

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Roland Head 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.

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