2 cheap FTSE dividend stocks to consider buying for an ISA

There’s no time limit when it comes to investing money that’s held within a Stocks and Shares ISA. However, evidence has consistently shown that time ‘in the market’ leads to better returns than ‘timing the market’. Moreover, the value of any cash on the sidelines will be gradually eroded by inflation. One option is to invest that money in FTSE dividend stocks to generate passive income.

The perfect dividend stock?

FTSE 250 member IG Group (LSE: IGG) is a very attractive option, in my opinion.

First off, there’s the size of the dividend yield. Based on current analyst estimates, this comes in at 5.1%. For comparison, companies within the mid-cap index yield 3.5% on average.

Now, a higher-than-average yield counts for little if a firm is in financial difficulty. It’s often the first thing to be cut. But since FY25 profit is expected to cover the cash distribution twice over, I think this is very unlikely with IG. It also has a huge amount of net cash on the balance sheet.

Another thing worth noting is that, after a few years of not moving at all, the total dividend is growing again. That usually a sign of confidence. And no wonder! The online trading platform provider reported a 12% jump in quarterly revenue last week. It is now expected to breach the £1bn mark for the full year.

Still cheap

Of course, no dividend stream is ever nailed on, hence why having a diversified ISA portfolio can make a lot of sense. Threats to IG include ongoing regulation and intense competition from rivals. Interestingly, business also tends to suffer when markets are calm and clients spot fewer opportunities to trade.

Still, I think these risks are in the price. The shares trade at just nine times forecast earnings. That’s despite rising nearly 30% in the last 12 months.

Stonking yield

A second FTSE stock worth considering is PayPoint (LSE: PAY). The mid-cap enables payments and commerce for the public and private sector.

Like IG Group, this seems to be a business in good health. Back in January, it reported “further progress in the third quarter […] despite a more challenging overall trading environment and a stalled recovery in consumer confidence“. As a consequence of this and further investment, management thinks £100m EBITDA (earnings before interest, tax, depreciation, and amortisation) will be achieved by the end of FY26.

As encouraging as this is, it’s PayPoint’s income credentials that are of interest here. On this front, it all looks pretty stellar to me.

Analysts reckon the total payout for FY25 will come to 38.8p per share. This gives a stonking yield of 6.2%. Another small increase is expected in FY26, easily covered by anticipated profit.

Great value

Again, nothing can be guaranteed and calculations may need to be adjusted as time goes on. PayPoint holders could see their dividend payments reduced if, for example, some of the retailers it works with go under or sever ties. Things might also get tricky if consumer confidence dips for longer than predicted.

But this £441m cap still smacks of value. Right now, shares change hands on a forward price-to-earnings (P/E) ratio of just eight. That looks a bargain for a company that achieves margins far above the market average.

The post 2 cheap FTSE dividend stocks to consider buying for an ISA appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. 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.