What shares should you put into your brand new 2015 ISA allowance? You can shelter up to £15,240 from tax starting 6 April (on top of the £15,000 allowance from the year just ending), and it can make a lot of sense to build a diversified portfolio. Here are three quite different stocks to consider:
Every ISA should have a handful of good dividend stocks, and they don’t come much better than utilities providers, which are able to pay out the lion’s share of their annual earnings. SSE (LSE: SSE) is in that happy band, with a yield of 6.1% forecast for the year ending March this year — and by utilities standards, it should be reasonably well covered. SSE also operates a scrip dividend scheme, so you don’t even have to take cash and shoulder the dealing costs of reinvesting it.
To put it into perspective, it’s the equivalent of a cash return of £930 on a whole ISA allowance, compared to the mere £240 you’d get from the very best cash ISA — and would you really go for cash when it’s so easily beaten by shares?
Will SSE cut its dividend the way Centrica did recently? Judging by its January update, no — the firm said it “expects to report an increase in the full-year dividend for 2014/15 that will at least be equal to RPI inflation” and plans to continue to beat inflation for 2015/16 too.
British American Tobacco
Ethical issues are for you to decide, but purely on financial grounds I like British American Tobacco (LSE: BATS)(NYSE: BTI.US). Although actual cigarette volumes are falling and have been for some years, the great bulk of those sold are at the lower-margin end of the business, and there’s still plenty of scope for upselling as developing world incomes continue to grow.
In 2014, British American enjoyed a 5.8% rise in sales of its Global Drive Brands, which include Dunhill, Rothmans and Pall Mall, and continued its policy of lifting its dividend in real terms.
After a 12-month rise of 16% to 3,695p, the shares are on a forward P/E of 17.7 for 2015, dropping to 16.4 a year later. With dividends set to yield more than 4%, that doesn’t look expensive.
As a recovery candidate, miner Anglo American (LSE: AAL) has to be worth a look. Underlying earnings fell 17% in 2014, even though production figures were up — but prices are still depressed. There’s a further EPS fall forecast for this year before we can expect a return to growth, but despite that a 12-month fall in the shares of 28% to 1,064p makes them look cheap to me.
Unless it’s cut, which seems unlikely at this stage, the mooted dividend would yield 5.3% this year. Anglo American deserves consideration.