With Cash ISAs currently offering an interest rate of around 1.5%, they are unlikely to be appealing to income-seeking investors. After all, their returns are lower than inflation, which means that investors’ spending power will gradually decrease if they have large amounts of capital in Cash ISAs.
As such, investing in FTSE 100 dividend shares at a time when the index itself has a dividend yield of around 4.5% could be a shrewd move. With that in mind, here are two FTSE 100 dividend stocks that could offer an impressive income return over the long run.
Berkeley Group While the housebuilding sector has experienced a difficult period since the EU referendum, Berkeley Group (LSE: BKG) continues to offer an appealing long-term income investing outlook. The company has a dominant position in the prime housebuilding sector, while its strategy of expanding into new regions of the UK could provide greater diversification and higher returns.
Berkeley Group’s dividend yield depends on whether it uses excess capital that has been earmarked for shareholder payouts on dividends or share buybacks. Either way, the company offers a generous income investing outlook, with it now expected to return £280m to shareholders per year until 2025. This could mean that it yields as much as 6% per year over the next five-plus years.
With Berkeley Group having a net cash position of £850m and demand for prime properties likely to remain buoyant over the long run, it could offer an improving income investing outlook. Trading on a price-to-earnings (P/E) ratio of 11, it also seems to offer good value for money and may be able to deliver impressive capital growth.
Smiths Group (LON:SMIN) With the prospects for the global economy being highly uncertain at the present time, the diversity offered by Smiths Group (LSE: SMIN) could be highly attractive to many investors. The company has a diverse range of businesses, with it operating in areas such as security services, oil and gas support services and technology.
In the current year, the company is forecast to post a rise in earnings of 12%. This puts it on a price-to-earnings growth (PEG) ratio of just 1.4, which indicates that it could offer good value for money at the present time.
In terms of its income prospects, Smiths Group’s dividend yield of 3.2% may not be among the highest in the FTSE 100. However, its scope to raise dividends at a rapid rate could be high. Shareholder payouts are covered 2.1 times by profit, which suggests that they could rise at a faster pace than earnings, without putting the company’s financial standing under pressure.
With a diverse business model that has a bright future outlook, the risks of investing in the business may be lower than for some of its FTSE 100 peers. As such, now could be the right time to buy a slice of the company.
Peter Stephens owns shares of Berkeley Group Holdings. 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.
Motley Fool UK 2019