The Motley Fool

Forget a Cash ISA: I’d buy these 2 FTSE 100 dividend stocks today instead

I’ve just been looking at the Cash ISA best-buy tables, and they make grim reading. We live in an age when a return of 1.46% on instant access is cause for celebration. Yet at that rate, it will take you a mind-bending 47 years to turn £1,000 into £2,000.

Patience is a virtue, but that is taking things a bit far. Especially since inflation will erode its value in real terms.

That is why I would prefer to invest in a Stocks and Shares ISA. Right now, there is a wide choice of top FTSE 100 companies offering annual dividend yields ranging from 4% to 9% the year. Here are two I would buy and hold for years and years.

BHP Group

Global resources company BHP Group (LSE: BHP) may be London listed but it’s a massive global operation, with a market-cap of £88bn. It’s the sixth largest on the entire index, sandwiched between pharmaceutical giants AstraZeneca and GlaxoSmithKline.

BHP has its finger in many pies, operating across minerals and mining, including copper, zinc, iron ore, coal, nickel and potash, as well as petroleum, technology and marketing. That means it’s plugged into the success of the global economy in general, and China in particular, for better or worse.

Mining companies can be highly cyclical, riding high in the good times, and crashing in the bad. BHP saw earnings per share drop 57% in 2015, and 81% in 2016, only to storm back by a whopping 455% the next year. Growth has been pretty steady since then, and analysts are predicting another 22% this year.

That’s despite the various worries afflicting the global economy, as the bull run gets long in the tooth, and the US China trade war and Brexit cast clouds. I can’t imagine President Donald Trump’s impeachment battle will help, either.

However, these concerns are partly reflected in the price, with the BHP share price trading at 12.3 times earnings, while the forecast yield is currently 6.7%. Incredibly, it will return $17bn to shareholders in 2019.

Aviva

Most people don’t think of FTSE 100-listed insurer Aviva (LSE: AV) as an international company, such is its strong UK presence, but it also operates in North America, Europe and Asia, which account for just over half of its total business and give it much-needed diversification as Brexit continues to hit growth at home.

Aviva is a multi-lines insurer that offers life and pensions policies, savings, general insurance, health and protection insurance, and is spreading its wings into corporate multinational, bulk purchase annuities, home, digital and small-to-medium-sized businesses.

Despite that, the Aviva share price has repeatedly disappointed, trading 25% lower than five years ago. This leaves it at a bargain valuation 6.7 times forward earnings.

The £15bn group recently warned that it would struggle to maintain profit growth, after posting 7% earnings growth in each of the past two years. The bad news is out there, which could make now a good time to buy. Especially as you get a forecast yield of 7.8%, with cover of 1.9. Better still, the balance sheet is strong.

I still believe the Aviva share price will recover, if you give it time. In the meantime, you get that massive income stream, which destroys every Cash ISA on the market.

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.