Holding investments within a Stocks and Shares ISA is something of a no-brainer for the vast majority of private investors.
In addition to protecting you from paying capital gains tax on any profits you make, this kind of account also prevents you from being charged income tax on any dividends that companies might distribute to you.
The only slight drawback is that you can’t carry over your £20,000 allowance. That means you must either use it or lose it by the end of every tax year (5 April).
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
Of course, once you’ve transferred whatever spare cash you have to this account, you then need to think about what to buy.
With this in mind, here are just two examples of quality stocks that should interest those looking for a combination of growth and income from their investments.
Outstanding performer
Fantasy miniatures retailer Games Workshop (LSE: GAW) is one of those stocks that will continually haunt investors who once hovered over the buy button back in 2016 but never actually made a purchase. I know this because I was one of them.
Since then, of course, the Nottingham-based business has become something of a market darling, rising from 500p to hit 4,000p in 2018. It’s dropped back since then — many sold out to protect their gains as markets began to wobble last October — but the company is still doing a fine job of raking in the cash from its devoted followers.
Back in January, Games Workshop reported a 14% rise in revenue (to £125.2m) with operating profit and pre-tax profit up 7% (to £40.8m).
With stonking margins and returns on capital employed, there’s little doubt that this is a quality business. Whether it’s worth buying right now, however, is another thing.
The stock is currently changing hands for 18 times earnings — far more than its five-year average of 13 — so anyone considering a purchase is betting on the good times continuing and investment in a new factory paying off. As a leader in its very niche market, I think this might be a risk worth taking.
And even if the share price doesn’t return to previous highs for a while, a yield of 4% is certainly worth collecting.
Reasonably priced
If Games Workshop doesn’t take your fancy, then perhaps FTSE 250 constituent Victrex (LSE: VCT) will.
The £1.9bn cap has been producing PEEK — its “high performing engineering thermoplastic” — for the last 40 years. Light and strong, the material features in airplanes and medical implants.
Like Games Workshop, Victrex has a lot of the qualities I look for: debt-free, high margins, great returns on the money it invests, and a leader in its field.
Like Games Workshop, shares have also been under pressure since peaking at the end of September last year.
Trading over the first half of FY19 is expected to be “much weaker” compared to the prior year due to a tricky first quarter, but things should recover in H2 thanks to “new projects and reduced headwinds“.
Having fallen a third in value, the stock is now available for 17 times forecast earnings. That’s not cheap relative to the market as a whole, but it does seem a reasonable price to pay given its excellent geographical diversification and great dividends.
Assuming analysts are correct in predicting a cash return of 115.9p per share, Victrex yields 5.3% at the time of writing.
