The Motley Fool

I’d buy this FTSE 100 dividend stock with a 8% yield for my ISA right now

Image source: Getty Images

In the world of low interest rates that we’ve been in for the past year, hunting for yield has become more important to me. Some FTSE 100 dividend stocks can offer me a higher yield than I would get via alternative income paying investments. As the impact of the pandemic eases, I’ve started to see more companies reinstating dividends, or increasing the size of the dividend. 

Whichever stock I choose to buy, I’m keen to put it in my ISA before the April deadline. This is because I’ll lose any of my allowance that I haven’t used up when the new ISA year starts. Holding the FTSE 100 dividend stock in the ISA allows me to collect the dividends gross, without having to pay tax on them.

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...

Strong results from a FTSE 100 stock

One stock that I’d look to buy right now is Persimmon (LSE:PSN). The UK-based homebuilder currently offers me an attractive 7.98% dividend yield. This means for a £1,000 investment, I’d be picking up just shy of £80 a year in passive income.

Persimmon is in a position to offer a generous dividend yield for a few reasons. The primary one is that it has plenty of free cash to distribute. Full-year results showed that cash increased from £843.9m in 2019 to £1,234.1m in 2020.

This was helped in part by the large profit margins that Persimmon has. Gross profit margin stood at 31%, and even the operating profit margin was high at 27.6%. Ultimately, the higher the profit margin, the larger the profit. The larger the profit, the higher the cash generated that can be distributed to shareholders.

Safe as houses?

I think that the outlook for the FTSE 100 stock is positive, supporting the paying of dividends going forward. The average selling price was up 6.9% in 2020, to over £230,000. If house prices remain stable and continue to tick higher, this will support the business. I’m also conscious of the continued boost that the stamp duty holiday will have.

A major spanner that could be thrown into the works would be any kind of re-introduction of lockdown later this year. Persimmon incurred £8m in costs to ensure a Covid-secure working environment last year. Even with construction being an industry that has been able to operate more than others during the pandemic, higher costs are a risk. If these costs increase, and access to raw materials and transportation is hindered, housing projects could be delayed. In turn, this may decrease free cash flow, with a small possibility of reducing the dividend yield. The eventual end of government schemes to help house-buyers could also hurt the firm one day.

I’m personally ok with the above risk. The success of the vaccination programme so far leads me to conclude that this lockdown will be our last in the UK. Also, £8m in costs sounds a lot, but when you consider the profit before tax of £863m, it’s definitely manageable.

Overall, I think this FTSE 100 dividend stock allows me to have a home for my money that will generate sustainable passive income. The dividend yield is attractive, and one that I think is relatively safe going forward. On this basis I’d look to buy Persimmon shares for my ISA.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

jonathansmith1 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his 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 click below to discover how you can take advantage of this.