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Forget buy to let! I’d buy these 2 bargain FTSE 100 dividend shares in an ISA today

Peter Stephens
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The future prospects for buy-to-let investments continue to be highly uncertain. Although house price growth has remained buoyant in some parts of the UK, tax changes and increasing difficulty in obtaining buy-to-let mortgages could make the investment appeal of property lower than it has been for many years.

By contrast, the investment potential of the FTSE 100 appears to be high. The index has experienced a turbulent period of late, which could present buying opportunities for long-term investors who are seeking high-yielding stocks at low prices.

With that in mind, here are two large-cap shares which could be worth buying at the present time.

Kingfisher

Recent results from DIY retailer Kingfisher (LSE: KGF) highlighted the challenges faced by the wider sector. Its half-year results showed a decline in like-for-like sales of 1.8%, with the performance of its various outlets very mixed.

The company is aiming to enhance its customer offer through increasingly differentiated ranges. It’s also been able to increase the strength of its balance sheet through debt reduction.

With a new CEO having started work at the business last month, further changes to the company’s strategy could be ahead as it seeks to strengthen its market position.

With Kingfisher having a dividend yield of 5.6%, it appears to offer income investing potential. Furthermore, its dividend payment is covered more than twice by net profit. This suggests it’s highly affordable at its current level.

Certainly, its trading conditions may continue to be weak in the near term. But for investors who can take a long-term view of what is a cyclical business, now could be the right time to buy a slice of the stock while it appears to offer a wide margin of safety.

Lloyds

Another FTSE 100 stock facing an uncertain period is Lloyds (LSE: LLOY). The bank’s recent results highlighted it’s experiencing a period of relatively high uncertainty that’s impacting its performance. This trend may continue over the coming months, as consumer and business confidence may be influenced by political and economic uncertainty across the UK.

Despite this, Lloyds’ financial outlook remains relatively robust. It expects costs to fall further this year, while its investment in boosting its digital presence is set to continue. This could increase its competitive advantage compared to sector peers – especially since Lloyds has a size and scale advantage over many of its challenger peers.

Lloyds currently has a forward dividend yield of 6.5% from a payout that’s covered around twice by earnings. This suggests there’s scope for dividend growth over the long run, should operating conditions improve.

Although buying the stock now may lead to paper losses in the short run, over the longer term, the stock’s high yield and the delivery of its strategy may produce capital growth alongside a generous income return.

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Peter Stephens owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. 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