The Motley Fool

The State Pension is too low! That’s why I’d pop these 2 bargain FTSE 100 dividend stocks into an ISA

Have you checked out how much the new State Pension now gives you? If not, you might be in for a shock. This year, it pays a flat rate £8,767.20 a year, which works out as just £24 a day.

If you have any money to spare, you should look to save it for the future. And I believe the best way to build your long-term wealth is to invest in stocks and shares, such as top FTSE 100 companies.

They can be risky in the short-term, but over the years they should beat almost every other asset class. Especially top UK blue-chips paying sky-high dividends, like these two.

BP

BP (LSE: BP) needs no introduction. It’s a true global giant, with a market-cap just shy of £100bn. The stock underpins millions of pension and ISA portfolios, either bought directly or within actively managed funds and FTSE index trackers.

Despite its strength, the BP share price has slipped lately. It’s down 13% in the last year as high global inventories and the slowing global economy squeeze the oil price  has left it trading at a temptingly low valuation.

Bargain seekers will be interested to learn BP trades at just 12.76 times earnings, against an average of 17.33 for the index as a whole.

A falling share price also drives up the yield, as this is calculated by dividing annual dividend by current share price. Right now, BP yields a handsome 6.30%, more than four times the 1.5% paid by today’s best buy instant access Cash ISA.

City analysts reckon BP’s dividend could hit 7% by 2021, as the group’s earnings are forecast to grow 11% this year, and 17% next. Its net debt has jumped to a slightly concerning $46.5bn, but management plans to reduce this by selling $5bn of assets, and BP generates plenty of cash to keep those dividends rolling in.

Legal & General Group

I’m also a long-standing admirer of FTSE 100 insurance giant Legal & General Group (LSE: LGEN), which offers an impressive forecast yield of 8% right now, generously covered 1.8 times by earnings. You won’t find many higher dividends than this one right now.

The Legal & General share price is down 15% over the last 12 months, but I think this offers investors an excellent entry point for a great long-term buy and hold. The real attraction here is the income, rather than share price growth.

There’s another benefit. Right now, this stock is yours at an astonishingly low valuation of just seven times forward earnings, despite its robust solvency and growing operating profits. So you get a dizzyingly high-income at a bargain basement price.

Management reckons Legal & General is well-placed to survive whatever Brexit throws at us, while City analysts anticipate steady earnings growth of 8% this year, and 2% next. In a couple of years time, the dividend could hit 8.4%. What’s not to like?

There will always be ups and downs with any stock, but if investing for a long-term goal such as retirement, you can afford to look beyond short-term volatility. Just keep reinvesting those dividends to turbo-charge growth.

High-Yield Hidden Star?

Discover the name of a Top Income Share with a juicy 7% forecast dividend yield that has got our Motley Fool UK analyst champing at the bit! Find out why he thinks “the stock’s current weakness may offer us the chance to buy a proven dividend performer at what could be a bargain price”. Click here to claim your copy of this special report now — free of charge!

Harvey Jones 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.