According to my research, the best interest rate available on a flexible cash ISA today is just 1.45%. In comparison, the FTSE 100 supports an average dividend yield of 4.5% which, in my mind, makes the index a much better investment if youre looking to grow your money.
Whats more, this dividend is only an average. There are some companies in the FTSE 100 that offer even bigger dividend yields. Today Im going to take a look at two such companies.
Built for the long term
The first stock is financial services group Legal & General (LSE: LGEN). What I like about this company is that its built for the long term. Tens of thousands of investors and savers have trusted the business with their retirement funds, so it has to run the business from a long-term perspective. That means conservative operational management and a progressive, sustainable dividend policy. In other words, I reckon Legal & General has one of the safest dividends in the FTSE 100.
At the time of writing, the groups dividend yield stands at an impressive 7.2% and the distribution is covered 1.8 times by earnings per share (EPS). City analysts are expecting this to grow in line with earnings for the next few years, which seems prudent as the company cannot afford to overstretch itself.
On top of the market-beating dividend yield on offer, shares in this financial conglomerate are currently trading at a relatively undemanding forward P/E of 7.7. The rest of the financial services industry is trading at an average multiple of around 11 times forward earnings so, from this perspective, the stock looks undervalued.
The low valuation, coupled with the market-beating yield, is too good to pass up in my view, especially when cash ISAs offer just 1.45%.
Durable moat
Another FTSE 100 income champion I think might be a better investment than putting your money in a cash ISA is wealth manager St. Jamess Place (LSE: STJ).
St. Jamess is one of the UKs largest and most respected wealth managers, which gives it a substantial competitive advantage over the rest of the financial services industry.
I think this competitive edge, or what Warren Buffett calls a moat, will ensure that St. Jamess continues to grow steadily for many years. Over the past five years, the company has more than doubled net profit and analysts believe EPS will jump 58% in 2018, followed by growth of 16% in 2019.
Analysts also believe that growth will support a dividend increase of 15% for 2018, and 30% for 2019. If the firm meets these targets, it will yield 5.9% for 2019.
Dividend growth
As earnings have expanded steadily since 2012, the company has also produced an enviable record of dividend expansion. Since 2012, the distribution to investors has grown more than 300%, showing that St. Jamess is committed to rewarding shareholders.
Overall, considering the groups strong competitive advantage and position in the UKs wealth management industry, I think it is highly likely St. Jamess will continue to reward investors handsomely for many years.
You Really Could Make A Million
Of course, picking the right shares and the strategy to be successful in the stock market isn’t easy. But you can get ahead of the herd by reading the Motley Fool’s FREE guide, “10 Steps To Making A Million In The Market”.
The Motley Fool’s experts show how a seven-figure-sum stock portfolio is within the reach of many ordinary investors in this straightforward step-by-step guide. Simply click here for your free copy.
