With Cash ISAs offering interest rates that are below inflation, buying FTSE 100 dividend shares could be a better idea. Not only do they offer higher income returns today, their dividend growth potential may mean that they can deliver significantly higher returns in the long run.
With this in mind, here are two FTSE 100 shares that could be worth buying. They appear to have bright long-term futures that could lead to them paying an increasing dividend over the coming years. This could improve upon your current level of passive income.
FTSE 100 housebuilders such as Barratt (LSE: BDEV) have experienced a period of uncertainty for a number of years that could continue in 2020. While political risk may have declined following the general election, Brexit is still likely to be a contributing factor to investor sentiment this year. As such, the company’s share price could experience a period of uncertainty in the near term.
However, Barratt’s recent updates have shown that demand for its properties has been robust. Low interest rates are expected to continue over the medium term, which could make housing more affordable for first-time buyers. With government policies such as Help to Buy expected to stay in place over the coming years, the prospects for the wider housebuilding sector could be more positive than the stock market is currently expecting.
With the company offering a dividend yield of 6.2% and trading on a price-to-earnings (P/E) ratio of 9, it seems to offer a wide margin of safety and a high income return. As such, now could be the right time to buy a slice of it while political risks are holding back investor sentiment.
The recent quarterly trading update from plumbing and heating products specialist Ferguson (LSE: FERG) highlighted the progress it is making in key markets. For example, in North America it recorded a 6.2% rise in ongoing revenue versus the same period of the previous year. This contributed to a company-wide increase in ongoing sales of 5.3%. Given the flat performance of many of the markets in which the company operates, this was a relatively strong performance.
Looking ahead, Ferguson’s demerger of its UK operations and the replacement of its CEO could mean there is significant change ahead. However, with its North American market potentially offering a high rate of growth, it seems to be well placed to capitalise on the opportunities ahead.
Although the company has a dividend yield of just 2.4%, it is covered 2.3 times by net profit. This suggests that it could raise dividends at a fast pace in the coming years and become an increasingly attractive income share. Therefore, buying it now could be a sound move as it executes what seems to be a solid growth strategy.
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Peter Stephens owns shares of Barratt Developments. 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.