The deadline to shelter up to £20,000 in a Stocks and Shares ISA for this tax year is looming. And right now, I think this pair of FTSE 100 dividend stocks are worth considering to aim for tax-free passive income.
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Imperial Brands
First up is Imperial Brands (LSE: IMB). Shares of the multinational tobacco company have been on fire, surging 58% over one year and 111% across five. And that’s without factoring in dividends!
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Yet the good news for income seekers is that this hasn’t dented the stock’s high-yield credentials. Based on forecasts, it’s sporting a 6.1% dividend yield for its next financial year (starting October). That’s well above the average for UK stocks.
The strong share price performance might surprise some. After all, cigarette sales have been steadily falling worldwide for years, supposedly pushing tobacco companies towards long-term oblivion. Yet the company has just committed to growing its annual operating profits by 3%-5% per year and announced an “evergreen” annual share buyback programme through to 2030.
Imperial is behind brands like John Player Special, Lambert & Butler, and Davidoff. It also owns backy brands Golden Virginia, Drum, and Rizla. Many smokers have downgraded to rolling tobacco due to affordability issues with cigarettes.
By concentrating on key core markets like the US, UK, Germany, Spain, and Australia, Imperial Brands has managed to enhance its profitability and market share.
Of course, the company faces obvious risks with increasing regulation and falling cigarette volumes. It might not achieve its financial targets. And I appreciate that tobacco stocks might not be ethical in the eyes of some investors.
But the dividends look affordable, as the forecast payouts are covered twice over by anticipated earnings. In short, this doesn’t appear to be a company in obvious decline.
Meanwhile, the stock still looks decent value, trading at around nine times earnings.
HSBC
The second stock is banking giant HSBC (LSE: HSBA). The FTSE 100 company’s share price has also done very well, rising 42% over the past year.
Again, though, this hasn’t resulted in a low yield or particularly high valuation. The forecast yield for 2026 is 6.2% and the forward price-to-earnings ratio is 8. So I think HSBC stocks still offers decent value.
What could go wrong? Well, interest rates are due to come down, which could squeeze the bank’s lending margins and dampen earnings growth. To offset this, HSBC has been restructuring and cutting costs, but we don’t know whether that will be enough.
Taking a longer-term view though, I think the bank’s pivot to higher-growth markets in Asia will pay off. Fuelled by rising disposable income and large populations, this region is tipped for very strong long-term growth.
Meanwhile, HSBC’s dividend cover looks strong and its CET1 capital ratio — a key measure of a bank’s financial strength — was a solid 14.9% at the end of 2024. So the company looks in great shape to me.
Of course, it goes without saying that no individual dividend is ultimately guaranteed. But I think these two UK stocks are solid long-term picks for investors seeking passive income to consider.
