The Motley Fool

Forget buy to let! I’d buy these 2 FTSE 100 dividend shares yielding 7% in an ISA today

You can still get yields of up to 8% from buy-to-let property in some areas of the country, but that excludes other costs of running the business, such as maintenance, tax and management fees.

When you add in these additional charges, the actual return received is likely to be a lot less.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

With that in mind, today I’m looking at two FTSE 100 dividend shares that both yield more than 7%. If you hold them within an ISA, there’s no additional tax to pay, which could make them better investments than buy-to-let over the long term.

Sector giant

My first pick is the financial sector giant Legal & General (LSE: LGEN). At the time of writing, shares in this life insurance, pensions and asset manager currently support a dividend 6.4%, rising to 6.8% next year based on current City forecasts.

The shares also trade at an extremely attractive valuation of just 8.8 times forward earnings, which, in my opinion, is a steal for this high-quality business.

Legal’s size is the primary reason why I think it could be a better investment than buy-to-let over the long term. The company is one of the largest financial services groups in the UK, which gives it a considerable advantage over competitors. Customers are more likely to trust the business with their pension savings because of its size and liquidity. It is highly unlikely that this business will ever implode and take savers’ money with it.

As the world gets richer, and more people take out pensions and insurance products, Legal should continue to expand, and investors should see this growth through both a higher share price and rising dividends.

Emerging market play

Rio Tinto (LSE: RIO) is my other FTSE 100 income giant that I believe could be a better buy than rental property. The global population is only expanding, and all these people need somewhere to live. As the world’s largest producer of iron ore, a key component of steel, Rio is a vital part of the supply chain for the construction industry.

Demand for this product is only going to increase as the world continues to grow, and Rio’s size and experience mean that it can produce iron ore at a lower cost than anyone else. This is fantastic news for shareholders. Indeed, over the past few years, the company has become a dividend champion as it has returned tens of billions of dollars in excess cash to shareholders.

Analysts believe this trend will continue. They have the stock yielding 8.6% in 2019 and 6.8% in 2020.

Once again, despite its attractive income credentials, shares in Rio look dirt cheap at current prices. Shares in the mining giant are currently changing hands at just 8.1 times forward earnings.

Considering the company’s international diversification, cash generation and future potential, this valuation severely undervalues the business. Buy-to-let property just does not offer the same kind of attractive investment qualities.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Rupert Hargreaves owns no share 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.