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Forget a Cash ISA! I’d buy these 2 FTSE 100 dividend shares today to make a passive income

Peter Stephens
Hand holding pound notes

With the best interest rates on Cash ISAs currently standing at around 1.5%, it remains highly challenging to produce a generous passive income from cash balances. By contrast, the FTSE 100 currently yields around 4.5%. Moreover, there are a number of large-cap shares that seem to offer the prospect of improving income outlooks over the long run.

With that in mind, here are two FTSE 100 shares that could deliver impressive, passive incomes for investors. As such, buying them now could prove to be a sound move.

Vodafone

Vodafone’s (LSE: VOD) recent quarterly update highlighted the progress it’s making in areas such as customer engagement and digital transformation. For example, its mobile churn rate declined by 0.6 percentage points to reach a record low, while simplified pricing plans could enhance its competitive advantage.

Certainly, the company’s financial performance has been disappointing over recent years. However, with a flurry of new partnerships and its management team now seeking to simplify the business to generate efficiencies, it could produce improving bottom-line growth that provides dividend increases over the coming years.

Having rebased its dividend, Vodafone now yields around 4.8%. This is around 30 basis points higher than the FTSE 100’s income return, and suggests that the stock offers income investing appeal even after its recent price rise. Its bottom line is forecast to rise over the next couple of years, which could increase investor demand for the stock and lead to growing total returns for its investors.

RSA

Another FTSE 100 share that could offer improving income prospects is insurance business RSA (LSE: RSA). It released a third quarter trading update this week which showed an improvement in underwriting profits. This trend could be aided in the medium term by an efficiency programme that aims to make the business leaner and more competitive in challenging market conditions.

RSA’s dividend yield currently stands at 4.5%. However, its income appeal is largely based on its potential to raise shareholder payouts at a rapid rate. For example, in the next financial year it is forecast to produce dividend growth on a per share basis of 18%. This puts it on a forward dividend yield of 5.3%. With dividends due to be covered 1.7 times by net profit next year and the company’s bottom line expected to rise by 18% this year and next year, there could be further scope for increasing dividends over the medium term.

Of course, RSA’s dividends may be less reliable than some of its FTSE 100 peers. Its recent financial performance has been mixed, which could cause some volatility in its total return prospects should it continue. However, a price-to-earnings (P/E) ratio of 13.7 suggests that the stock market may have factored in its potential risks, which could lead to impressive returns in the coming years.

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Peter Stephens owns shares of Vodafone. 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