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Forget a 1.4% Cash ISA, here are my top dividend stocks to beat it

I’ve been checking Cash ISA rates again, and the best easy access variable rate I can find today is 1.44%.

I explained recently how that doesn’t even match inflation and is guaranteed to lose you money in real terms, so why 7.8 million adults in the UK went for a Cash ISA in 2017-18 mystifies me.

Stocks & Shares

By contrast, I say a Stocks & Shares ISA is a very good thing. With a maximum investment of £20,000 per year and all profits tax-free, it’s got to be the best vehicle for investing in shares for your long-term future.

But are shares as risky as many folk think? Over the long term, no. Newspapers print scare stories when the Footsie falls, but that makes for a good headline, unlike one saying “Top UK dividends still going well, no need to panic“.

To make the most of a Stocks & Shares ISA while minimising risk, I’d focus on dividends. But which five shares might I buy first?

No cuts here

My first choice is Royal Dutch Shell. It has suffered a bit of share price weakness over the past few years, but that’s pushed the prospective dividend yield up to 6.7%. Every few years, analysts fret about whether Shell will have to cut its dividend — but it hasn’t happened even once since the end of World War II. How about the end of our reliance on fossil fuels? I can’t see it happening in my lifetime.

Next up I’d add City of London Investment Trust, which has a simple goal — to outperform the total return of the FTSE All Share index over the long term. It’s been doing rather well at it too, and has been bringing home dividend yields of around 4%. But more importantly than the yield, City of London has lifted its dividend every year for more than 50 years in a row.

I like insurance

I’d be hard pushed to not invest in an insurance company because, even though the business has its short-term ups and downs due to its very nature, it’s a really solid long-term generator of cash. I currently own Aviva shares myself, but here I’m looking for safety. Prudential is probably the safest, but its yield is low, so my choice as the best compromise between risk and dividends is RSA Insurance Group with its well-covered 4.8% yield.

Housebuilding is another favourite sector, and this time I’m going to plump for Bovis Homes. Before you shrink back in horror at the risk of a housing slowdown, I’ll tell you why I’m not worried. Housebuilding is cyclical, but over the long term there’s a chronic housing shortage. And there’s safety in the Bovis yield itself, currently at 10% — it won’t stay that high forever, but it could be slashed by 50% and still be attractive.

Top manager

Finally, I’m going for Man Group, the FTSE’s only listed hedge fund manager. It’s a firm whose year-by-year earnings are erratic, but I’d expect that from any investment manger. And it’s keeping its dividend conservative but progressive, and even then we’re looking at a forecast yield of 4.4%.

With stocks like these on offer, I think I’d rather be dead in a ditch than invest in a Cash ISA.

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Alan Oscroft owns shares of Aviva. The Motley Fool UK has recommended Prudential. 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.