With some attractive dividends available in the market right now, ought I to stuff my Stocks and Shares ISA with income shares?
I do think I can get some good yields if I buy now. But the falling price of some growth shares has also caught my attention. I therefore continue to invest in both growth and income shares.
On the income front, if I had a spare £5,000 right now and wanted to target a 7% yield, I would put it in my ISA and spread my money evenly across five shares.
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Choosing shares to buy
Dividend yield depends on companies divvying up at least some of their profits with shareholders. That is never guaranteed: there may not be enough profits, or a company may decide to use them for another purpose than rewarding shareholders.
So when picking income shares for my portfolio I ask myself whether a company’s business model looks like it could keep churning out profits for a long time to come – and if they might be paid out as dividends.
5 shares I’d buy today
If I had spare cash to invest, here are five dividend shares I would buy today for my Stocks and Shares ISA. I think they offer a good combination of income now with future growth prospects.
I own British American Tobacco shares already but would happily own more. As a multinational company with brands like Lucky Strike in its portfolio, it benefits from large cashflows and yields 6.6%. Declining cigarette sales are a risk to long-term profitability.
National Grid offers a 5.1% yield. The power distributor has an effective monopoly in part of its business as no competitor could build an identical network. Fluctuating power prices could mean revenues and profits come under pressure, but in the long run I see this blue-chip company as a promising income pick.
I would also buy insurer Legal & General, which offers a 7.5% yield. I like its strong brand and large customer base, although higher costs could mean claims settlement eats into profits.
Despite being the biggest supermarket in the UK, Tesco has seen its shares fall 21% over the past year. That means the yield is now 5.1%. With its market leadership and economies of scale, I would be happy to tuck it away in my Stocks and Shares ISA for the long term.
Finally I would buy the Income & Growth venture capital trust. It offers a 10.7% yield. The dividend does tend to move around quite a bit, based on the performance of the small and medium-sized enterprises in which the trust invests.
7% yield
If I bought this handful of shares in equal proportions today for my Stocks and Shares ISA, I should earn an average dividend yield of just over 7%.
With £5,000 to invest, that would equate to a bit more than £350 in annual passive income.
