Today I’m going to take a look at two FTSE 100 dividend champions that I would buy in a Stocks and Shares ISA.
Both of these blue-chip companies support market-beating dividend yields. I reckon they have the potential to generate large total returns for investors in the years ahead.
FTSE 100 income
Global defence giant BAE Systems (LSE: BA) cut its dividend to investors at the beginning of the coronavirus pandemic.
However, management recently reinstated the payout after it became clear that the outbreak would not have as significant an impact on the FTSE 100 business as initially expected.
In some respects, BAE is the perfect income investment. The company earns its income from defence contracts with governments around the world. These contracts are usually in place for years. This gives the firm plenty of visibility over its long-term cash flows.
This should be good news for the FTSE 100 firm’s dividend sustainability in the long run.
Analysts are expecting the company to distribute a total of 22.8p in dividends this year. That equates to a dividend yield of 4.4% on the current share price.
What’s more, the payout could grow by as much as 10% in 2020 according to current analyst projections. If the company meets this projection, the stock will yield 4.8% next year. The dividend is covered twice by earnings per share. It seems as if there’s plenty of room for growth from this level in the years of ahead.
As such, now could be the perfect time to buy this FTSE 100 dividend champion in a Stocks and Shares ISA for the long term.
Global mining giant BHP (LSE: BHP) also has attractive dividend credentials, in my opinion.
Like BAE, the impact of the coronavirus crisis on the FTSE 100 business has not been as significant as first feared. Further, it looks as if the company is set to benefit significantly from the global economic recovery. As governments unleash massive spending plans to try and stimulate growth, commodity prices could rocket.
Despite the impact of the crisis on the global economy, BHP’s earnings will remain stable this year, according to current projections. This suggests the group has headroom to distribute a large amount of profit to investors.
Indeed, analysts are forecasting a dividend of $1.26 per share for the year, which give a prospective dividend yield of 5.6% on the current share price.
At current levels, shares in the FTSE 100 miner also appear to offer a margin of safety. The stock is trading at a forward price-to-earnings (P/E) multiple of 12.5, compared to the market average of 14.
This low valuation, coupled with the stock’s market-beating dividend yield leads me to conclude that this could be the perfect addition to a Stocks and Shares ISA. Rising demand for essential commodities such as copper and iron ore may also lead to increased shareholder returns from the company in the next few years.
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Rupert Hargreaves 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.