I love collecting dividend cash in my Stocks and Shares ISA. It usually goes right back into new FTSE 100 dividend shares. I do already own some of my favourites, including Persimmon, Lloyds and Aviva. But there are plenty more I have my eye on. Today I’m looking at three that are on my ISA watchlist ready for my next investment.
I keep coming back to Rio Tinto (LSE: RIO). Rio went ex-dividend on 12 August. But to compensate, the share price has since dipped 12%. That’s actually a bigger drop than the dividend. So, it looks like a long-term buying opportunity to me.
There’s a forecast ordinary dividend yield of around 8% for the current year. Rio is in a cash rich position right now and is offering special dividends too. I never rely on specials, mind, because they’re just that — special one-off payments that I can’t expect every year.
The main downside is sector cyclicality, which can affect the annual payments. Rio’s dividends look impressive this year. But four or five years ago, world metal prices were in a slump, and mining payouts were slim. In 2021, there’s been a commodities boom that’s pushed prices back up again. Buying now could lead to dividend disappointments in the next downturn. But on balance, I expect healthy long-term demand for metals — and a decent dividend return.
Stocks and Shares ISA ethics?
I can’t ignore Imperial Brands (LSE: IMB), on a forecast 8.5% dividend. That’s even after a cut in 2020. We’re also looking at a P/E multiple of only around six right now, less than half the FTSE 100’s long-term average. The reason for the low valuation seems clear enough — tobacco.
But despite the growing pariah status of the weed, the market is holding up surprisingly well. And Imperial, along with the rest of the industry, is moving increasingly towards alternative methods of providing a tobacco hit rather than smoking. The only reason Imperial has not made it into my Stocks and Shares ISA so far is ethics. I’m just not sure I want to be investing in tobacco at all, even if it is evolving into safer products.
And there is still a significant risk that total tobacco consumption might severely diminish in the decades ahead. But on balance, ethics aside, I rate Imperial Brands a buy for me.
Tempted by financials again
I’m heavy on FTSE 100 financials already, but I’m seriously tempted to add Barclays (LSE: BARC) to the mix. The banking sector has been under pressure for years, and last year’s crash threw up plenty of recovery candidates. But I always say I won’t invest for recovery until I see a company coming out of the far side of its troubles.
It means I won’t get in at the bottom. But it should lower my chances of being burned. And Barclays really does look like it’s on the mend now. Forecast dividends are up around 5.5%, and should be well covered. Barclays also retains its international investment banking business, unlike Lloyds, which has retreated to the hopeful safety of UK retail banking.
What’s the downside? The post-pandemic economic outlook is far from certain, and inflation is surely on the way. But I’d take the risks to hopefully strengthen my Stocks and Shares ISA dividend performance.