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

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It might be wise to steer clear of utilities companies in the run-up to the election, as Jeremy Corbyn’s ambitious nationalisation plans could wreak havoc for shareholders. But the polls put him way behind, and the markets appear to be pricing in very little, if any, chance of a Labour victory.

Even Thursday’s news of a planned £11bn tax on oil companies had no effect on the BP and Shell share prices, and I’m increasingly convinced the we as investors should approach it the same way.

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So I still like Severn Trent (LSE: SVT) as an ISA stock, as what I want for my ISA is reliable and progressive dividends. I find Severn Trent’s, which will have been lifted 18% over five years according to current forecasts, attractive with a yield of 4.3%.

There’s room for caution, though, as the water firm reported an 11.2% fall in first-half pre-tax profit, to £180.7m. The company blamed the fall partly on a rise in infrastructure renewal costs, which reached £75.6m.

But on the upside, turnover was up 3.2%, and Severn Trent reckons it’s still on track to achieve its current expectations of turnover somewhere between £1.61bn and £1.64bn, with underlying pre-tax profit set to beat last year’s £44m.

The company saw fit to lift its interim dividend by 7%, in line with its policy of growing it by inflation plus 4%. Is that a sensible move when profits are under pressure? Dividend cover could be a bit stretched over the next couple of years, so that’s definitely worth watching.

I think Severn Trent’s dividend is perhaps one of the riskier of the utilities companies at the moment, but the firm is relatively free from the customer competition that’s afflicting energy suppliers.

Top dividend

For a bigger yield, I’m still a big follower of Aviva (LSE: AV). I currently hold some Aviva shares in my SIPP, but an additional ISA purchase is definitely one of my possibilities before the end of the year.

As fellow Motley Fool write Edward Sheldon has pointed out, Aviva shares are currently cheaper than they were three years ago, even though profits have nearly doubled and dividends are up 44%. Even knowing that Aviva shares were stuck in a long-standing weak spell, it shocked me a little to see it in those terms.

Dividends have been progressing well since Aviva emerged from the financial crisis and got its balance sheet back into a respectably liquid state, and if current forecasts prove accurate, we’ll see a hike to a yield of 7.1% — followed by 7.4% in 2020.

Low valuation

Meanwhile, a couple of years of earnings growth have dropped the stock’s forward P/E as low as 7.5, and that’s only around half the FTSE 100‘s longer-term average. 

To me, Aviva shares are priced as if the company is in financial trouble, and have been for years. But I’m just not seeing it, and a large part of the stock’s low valuation has to be the general bearish sentiment towards the financial sector as a whole. We might not get any revaluations until Brexit is finally settled and we see what impact it has on insurers like Aviva, which I expect to be minimal.

In the meantime, I’m happy to keep pocketing my dividends… and thinking about that top-up.

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Alan Oscroft owns shares of Aviva. 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.