With it being difficult to obtain an income return above 1.5% in a Cash ISA, buying FTSE 100 dividend shares could be a better means of obtaining a passive income.
In many cases, large-cap shares offer 4%+ dividend yields even after they have experienced a bull market in the past decade. As such, they may offer good value for money, which makes them attractive at a time when the prospects for the world economy continue to be bright.
With that in mind, here are two FTSE 100 income shares that could be worth buying today. They appear to offer impressive income prospects that could boost your passive income in the long run.
The outlook for defence companies such as BAE (LSE: BA) has improved over the past few years. The rising defence spending of the US means that the wider industry has enjoyed higher demand compared to the previous decade, where cutbacks were commonplace among the world’s biggest military spenders.
A trend of rising spending on defence could continue over the coming years. It is expected to create an improving operating environment for BAE, which is forecast to post a rise in its bottom line of 7% in the next financial year. Since the stock trades on a price-to-earnings (P/E) ratio of just 12.8 at the present time, it seems to offer growth at a reasonable price despite the ongoing geopolitical risks facing major customers such as Saudi Arabia.
In terms of the company’s dividend, it currently yields around 4% from a payout that is covered twice by net profit. Its recent performance has been positive according to its results, with it enjoying contract wins and having a strong position in key markets. As such, now could be the right time to buy a slice of the company for the long term.
Also offering an impressive income outlook at the present time is FTSE 100 insurance business Aviva (LSE: AV). Its dividend yield of 7.8% is among the highest income returns currently available in the FTSE 100, while its dividend cover of 1.8 indicates that its shareholder payouts are highly affordable.
Recent investor updates from Aviva have shown that the company’s performance has been mixed. However, its revised strategy focuses on making the company more efficient, reducing debt and investing in digital opportunities to enhance the customer experience. This could strengthen Aviva’s financial performance and lead to an improved prospect of paying a rising dividend over the coming years.
Since the stock currently trades on a P/E ratio of 7, it seems to offer a wide margin of safety. As such, while it is undergoing a period of relative uncertainty and change, its risk/reward ratio seems to be highly attractive. This could make now the right time to buy shares in the company as it implements an updated strategy.
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Peter Stephens owns shares of Aviva and BAE Systems. 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.