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2 undervalued FTSE 100 dividend stocks I’d buy for my ISA today

The rise of the FTSE 100 in 2019 has been impressive, with the index increasing in value by over 10%. Despite this, there continues to be a relatively large number of shares that offer high yields and low valuations. This could mean that today represents a good time to consider buying them.

With that in mind, here are two FTSE 100 dividend stocks that appear to offer the potential for rising income payments. They could provide an impressive level of income within a Stocks and Shares ISA over a long-term time period.

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Direct Line

News of a change in CEO at Direct Line (LSE: DLG) could cause a degree of instability in the short run. The insurance company’s current CEO has been at the helm for a decade, overseeing a highly profitable period for the business that has delivered relatively high dividend payments for investors.

In the current year for example, Direct Line is expected to yield 8.8%. That’s double the FTSE 100’s yield, with the potential to increase dividend payments over the medium term as it rolls out a refreshed strategy. This includes a digital-only brand that’s intended to compete with automated comparison sites.

Since Direct Line trades on a price-to-earnings (P/E) ratio of 10.7, it seems to offer a wide margin of safety. Investors appear to be cautious about its prospects, which could provide new investors with a buying opportunity. With dividends per share having grown at an annualised rate of over 10% in the last five years, the company appears to offer a mix of income and value investing potential.

Kingfisher

Also set to have a new CEO in place in the near future is DIY specialist retailer Kingfisher (LSE: KGF). Its business model and overall strategy could experience significant change over the next couple of years, since its results have been mixed for a number of years. Although it has been able to improve its efficiency, a weak trading environment in key markets has acted as a drag on its overall performance.

Despite this, its income investing potential could be impressive. Dividend payments are expected to be covered 2.3 times by net profit in the current year. Since the stock has a dividend yield of around 5%, it appears to offer a high, albeit potentially risky, dividend.

Investors appear to be anticipating further uncertainty for the business. It trades on a P/E ratio of 8.36, which suggests it offers good value for money. This could provide a margin of safety, with the stock’s risk/reward ratio appearing to be favourable.

While there may be more reliable income shares in the FTSE 100, Kingfisher offers a low valuation alongside a high and sustainable dividend. Therefore, it could provide a mix of capital growth and income prospects under a new CEO and, potentially, a revised growth strategy.

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Peter Stephens owns shares of Direct Line Insurance. 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.