While Cash ISAs may continue to be popular, there are a number of FTSE 100 dividend shares that could offer significantly higher returns. In fact, with the best Cash ISAs having an interest rate of around 1.5%, it is possible to generate six times that level of return through a number of FTSE 100 dividend stocks.
Certainly, there is a risk of capital loss with buying shares through a Stocks and Shares ISA. However, with these two FTSE 100 income shares appearing to have low valuations, they could offer growth potential over the long run.
The Persimmon (LSE: PSN) share price may have gained 19% since the start of the year, but it still offers a dividend yield of around 10%. This dwarfs the return on a Cash ISA, and could mean that its risk/reward ratio is highly appealing.
Furthermore, the prospects for the housebuilding industry continue to be relatively upbeat. The company has recently reported that trading conditions have been robust, with low interest rates and government schemes such as Help to Buy helping to provide resilient demand from first-time buyers.
Although the UK economy continues to face a number of risks as Brexit moves ahead, Persimmon’s share price appears to factor them in. The stock trades on a price-to-earnings (P/E) ratio of just 8, which indicates that it could offer further capital growth potential.
At a time when many UK-focused stocks are relatively unpopular among investors, there could be opportunities to obtain high yields and capital growth potential over the long run. Persimmon appears to be one such option, with its total return prospects seemingly high.
Tobacco stocks such as Imperial Brands (LSE: IMB) have continued to be unpopular in recent months. Its share price is little changed on where it started the year, while the wider index has moved higher.
Investors seem to be concerned about the regulatory outlook for the industry. There is a gradual move towards greater restrictions on cigarettes, while an increasingly health-conscious consumer means that cigarette volumes are likely to continue their decline over the medium term.
However, with Imperial Brands having a strong foothold in the next-generation products segment through its blu e-cigarettes, it could achieve an impressive rate of growth over the long run. It is developing new products which could appeal to consumers, and that may benefit from a more positive regulatory outlook than cigarettes.
Since Imperial Brands has a dividend yield of 9%, it seems to offer an enticing income return. Having increased dividends per share by 10% last year and being expected to do likewise this year, it could offer a strong income outlook over the next few years. Since it has a P/E ratio of 9, it could also have growth potential as well as reduced risk, as its margin of safety appears to be wide.
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Peter Stephens owns shares of Imperial Brands and Persimmon. The Motley Fool UK has recommended Imperial Brands. 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.