Many seasoned investors agree that buying dividend shares listed in the FTSE 100 – the index made up of the biggest listed companies in the UK – is a time-tested strategy for generating retirement income. Share prices of dividend-paying firms tend to be less volatile regardless of what happens in the stock market. Such companies typically generate strong cash flows, which in return may also mean shareholders can see an increase in dividend payouts over time.
In contrast, keeping your money in cash or a savings account may not always be the best way to secure a wealthy retirement. The interest earned in a savings account often doesn’t even cover inflation.
Why ISAs are important
In the UK, we’ve an important investment structure that comes with legal tax advantages — individual savings accounts (ISAs). So if you’re looking to invest your hard-earned cash in July, I’d consider learning more about the different types of ISA available to you, with an emphasis on Stocks and Shares ISAs. You can can buy almost any combination of investments in an ISA, with tax-free returns.
Currently, there’s a maximum subscription allowance of £20,000 per adult per tax year. Our tax year runs from 6 April to 5 April, so the deadline for individuals to contribute to the previous year’s ISA is 5 April 2021. Yet I’d urge readers to not wait until April next year to start.
I believe the recent market decline provides a viable opportunity for creating a Stocks and Shares ISA portfolio to suit your retirement needs.
So, with that said, here’s my top FTSE 100 dividend share pick to buy in July to provide you with extra income in retirement.
Investing in GSK
Pharmaceutical bellwether GlaxoSmithKline (LSE: GSK) is a stock you may want to research further, especially if you are looking for share to invest in an ISA.
Amid health and economic uncertainties created by the pandemic, the healthcare sector has managed to hold up significantly better than other industries in the broader markets. I expect even further upside potential for the industry.
GSK announced robust Q1 results in late April. Revenues were up 19% year-on-year. The company divides revenue into three segments:
- Pharmaceuticals (sales of £4.4b);
- Vaccines (sales of £1.8b);
- Consumer Healthcare ( sales of £2.9b).
Its HIV therapies continued growing and Shingrix, GSK’s shingles vaccine, became a bright spot worldwide. The group is also a leader in respiratory diseases. The healthcare company is a top global vaccine player, producing close to 2m vaccines daily for global distribution.
Therefore it’s no surprise that the City believes GSK also has a strong opportunity in the current vaccine race. It’s working with France’s Sanofi to develop a vaccine that may enter clinical trials this year. Recently, it also announced successful clinical trial results on an injection to prevent HIV.
Income investors know that they can compound their returns through reinvesting dividends from high-yielding shares. GSK’s dividend yield is 4.9% — another important reason why I believe GSK shares belong in an ISA. The stock is expected to go ex-dividend in early August.
The current share price of 1,645p means a forward price-to-earnings ratio of 13.9. Investors may regard any dip in the share price as a good opportunity to buy. The company will next report earnings in late July. There will likely be volatility in the stock price at the time.
