Today’s super-low interest rates make it difficult for savers to make any money from their cash. As I write, the best easy-access Cash ISA rate I can find is just 1.3%. That’s less than inflation, which means the spending power of your money will fall while it’s in your account.
If you don’t expect to need the money for a number of years, I believe dividend stocks can provide a better way to generate income. Today, I want to look at three high-yield dividend stocks I’d buy for a Stocks and Shares ISA.
A return to growth?
The Vodafone Group (LSE: VOD) share price has been a poor performer in recent years. But the group’s consolidation under newish chief executive Nick Read appears to be going well and the latest trading figures show a return to growth.
In my view, any disruption caused to the group’s operations by the coronavirus is likely to be short-lived. Looking beyond this, I see a good chance for dividend investors to buy into a stable, mature business with attractive cash generation.
Vodafone is now Europe’s largest ‘converged operator’ — it has mobile and fixed-line networks which reach 124m homes and businesses. Profits are expected to rise strongly over the coming year and I believe the group’s free cash flow will continue to support the 5.6% dividend yield.
If you’re looking for a quiet life and a reliable income, I think Vodafone shares are worth considering.
A top FTSE 100 landlord
FTSE 100 firm Landsec (LSE: LAND) is one of the UK’s largest listed landlords. This real estate investment trust (REIT) has a £6.7bn market-cap and a portfolio valued at £13.4bn. That’s equivalent to a net asset value of 1,298p per share.
Given this, you might wonder why the Landsec share price is currently hovering at around 875p. The coronavirus outbreak has made things worse, but the shares already traded at a discount to net asset value, thanks to Landsec’s exposure to retail property.
This sector is troubled at the moment, but it accounts for less than half the firm’s portfolio. Most of the remainder is high-quality office accommodation, which has continued to perform well.
In my view, Landsec’s top-quality portfolio and low debt levels make the dividend look pretty safe. At current levels, the shares offer a dividend yield of 5.2%. I see that as a buying opportunity.
Insurance companies have always been a popular choice with income investors, thanks to a business model that tends to generate surplus cash. One of my favourites in this sector is FTSE 100 motor insurer Direct Line Insurance Group (LSE: DLG).
Since floating on the stock market in 2013, Direct Line has returned just over 200p per share to shareholders through dividends. That’s nearly 65% of its current market-cap. Over the same period, the shares have also doubled in value.
Market conditions have been tough over the last few years, but the company has been investing in technology aimed at providing more accurate pricing and cutting customer service costs.
At current levels, the shares offer a forecast dividend yield of around 7%. This stock has been a good investment so far. I rate the shares as a buy, and add to my own holding over the coming weeks.
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Roland Head owns shares of Direct Line Insurance. The Motley Fool UK has recommended Landsec. 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 2020