3 top dividend shares for an ISA in 2022

With the 2021/2022 ISA deadline less than a week away, I’ve been thinking about dividend shares to buy for my Stocks and Shares ISA. When dividend stocks are placed in an ISA, all income is tax-free.

Here, I’m going to highlight three dividend payers that strike me as great ISA investments right now. I think these stocks could help me generate some nice tax-free passive income, as well as some capital growth, in the years ahead.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

A FTSE 100 high-yielder

First up is Legal & General (LSE: LGEN), a leading provider of financial services. Recently, it declared a dividend payout of 18.45p per share for 2021, which equates to a very attractive yield of 6.6%, at the current share price.

I don’t usually invest in ‘high-yielders’ as they tend to be higher-risk investments. However, in LGEN’s case, I’m willing to make an exception. That’s because the company appears to have plenty of momentum right now.

Last year, for example, profit after tax jumped 28% to £2,050m while return on equity came in at 20.5%. On the back of this strong performance, the company raised its full-year dividend payout by 5%.

One risk to be aware of here is that the stock can be volatile at times. We saw this volatility earlier in the year. Yet I’m comfortable with share price ups and downs. I think the key with LGEN is to take a long-term view and enjoy the big dividends along the way.

A high-quality dividend stock

The next stock I want to highlight is Sage (LSE: SGE). It’s a leading provider of accounting software. The prospective dividend yield here is about 2.6% right now.

There are a number of reasons I like the look of Sage shares at present. One is that the company should be protected from inflation. Not only does it have a very high gross profit margin (companies with high gross margins are typically able to handle inflation well because rising costs don’t hurt their profits as much) but it also has the ability to raise prices.

Another reason is that the company has been buying back its own shares recently. This should push earnings up, over time.

Sage shares currently have a forward-looking P/E ratio of about 27. This valuation adds a bit of risk. I’m fine with it however. I see it as quite reasonable for a high-quality software company.

A small-cap dividend payer

Finally, in the small-cap space, I like Urban Logistics REIT (LSE: SHED). It’s a real estate investment trust that owns a portfolio of strategically-positioned warehouses across the UK.

SHED has been a reliable dividend payer in recent years and for the year ending 31 March, the group is expected to pay out 7.6p per share in dividends. At today’s share price, that equates to an attractive yield of around 3.9%.

It’s not just the yield that’s attractive here however. In my view, the stock’s valuation is also very appealing. At present, the forward-looking P/E ratio is just 21. Given that the UK warehouse market is absolutely booming right now, I think that’s a bargain.

The major risk here is that the company, like other REITs, sometimes raises new capital from investors to fund its expansion. This is important to know as it can have a negative impact on the share price in the short term.

As a long-term investor however, I’m not too concerned about this.