According to my research, the best interest rate you can get on a Cash ISA today is around 1.5%, a pitifully low return that doesnt even match inflation.
If you are looking for a better return on your money, I highly recommend buying a basket of FTSE 100 income stocks. Right now, theres a range of blue-chip income stocks that offer dividend yields of 5% or more, which puts the Cash ISA to shame.
Companies like the worlds largest advertising group, WPP (LSE: WPP).
Working through the problems
Shares in this advertising and marketing conglomerate have fallen around 50% over the past two years as investors have grown wary about the groups prospects. City brokers also seem to have an overwhelmingly negative opinion of the company. At the time of writing, of the 27 brokers who currently cover the stock, only five (or 14%) give it a buy rating.
After earnings declined by a quarter in 2018, analysts are expecting the groups profits to contract further this year as it struggles to compete against online marketing oligopoly Facebook and Google.
However, management is taking action to try and stabilise the business, including selling off non-core businesses and minority ownership stakes in other marketing agencies. For example, it recently sold its stake in post-production company The Farm, as well as Chime. The City also expects WPP will announce the long-awaited sale of its Kantar unit in the next few weeks. Analysts believe this business could be worth as much as $4bn.
These transactions tell me that while WPPs earnings might be falling, the companys financial position is only improving. Thats good news for the firms dividend prospects.
Analysts believe the business will distribute 60p per share to investors this year, giving a dividend yield of 5.9% on the current share price. Even after factoring in the decline in earnings, this distribution will be covered 1.7 times by earnings per share. A possible $4bn cash infusion implies there might be special dividends on the horizon for investors as well.
International cash generation
Another blue-chip income stock I think could be a good substitute for a Cash ISA is mining and commodity trading giant Glencore (LSE: GLEN).
There are two main reasons why I believe Glencore is one of the most attractive income stocks in the FTSE 100. First of all, the groups managers and employees own a significant number of the companys outstanding shares, which implies they are highly incentivised to return as much cash as possible to shareholders.
And secondly, Glencore is one of the worlds largest integrated producers and marketers of commodities making it a relatively essential part of the global economy. As the global economy continues to expand, the groups earnings in cash generation should continue to grow as well.
Cityanalysts expect the firm to generate as much as $4.6bnof net profit this year and $5.5bn in 2020, most of which will be returned to shareholders if past trends are anything to go by. Indeed, last year, the company returned all of its net profit of $3.4bn and more to shareholders (buybacks and dividends for the year totalled around $5bn).
Considering its history of returning cash to investors and a 5.5% dividend yield, I think this stock is certainly worth tucking away in your income portfolio.
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