As a new tax year dawns, I’ve been looking for UK shares to add to my Stocks and Shares ISA. Here are three equities I’d buy for my portfolio today.
UK shares I’d buy
I want to build a diverse portfolio of investments for my Stocks and Shares ISA. To that end, I will make investments in varied sectors, such as financials, utilities and technology.
One of my favourite buys in the financial sector right now is Direct Line (LSE: DLG). Among the largest insurance groups in the country, this FTSE 250 stock is an income and growth champion. Earnings have grown steadily over the past few years, and the share currently supports a dividend yield of 7%. This is based on analysts’ projections, which are subject to change, of course.
I think Direct Line has a substantial competitive advantage due to its size. Economies of scale allow it to serve customers at a lower cost than competitors can, increasing profit margins.
But size can also be a risk for insurance businesses. For example, a considerable loss such as a natural disaster can cause huge damages, which would be devastating for the group’s balance sheet. The company faces other challenges such as stringent regulations and controls on how much capital it can return to investors.
Despite these risks and challenges, I would buy the stock for my portfolio today.
Stocks and Shares ISA income
In the utility sector, I would buy SSE (LSE: SSE).
I have chosen this business because it is investing significant sums in renewable energy. I think companies like SSE will play an essential role in the world’s transition to a more sustainable future.
Rather than waiting to be forced to invest in renewables, SSE has laid out plans to invest £7.5bn in low-carbon energy infrastructure over the next five years and treble its renewable electricity output by 2030.
These investment plans could translate into earnings growth, which would push the share price higher, although that’s not guaranteed. What’s more, the stock also supports a dividend yield of around 5% at current levels.
The biggest challenge the company faces is balancing investment and shareholder returns. If it has to spend more than projected meeting its renewable energy output target, SSE may have to cut shareholder returns.
Still, I would buy the company as part of a diverse portfolio of UK shares in a Stocks and Shares ISA.
FTSE 250 technology company Softcat (LSE: SCT) is one of the UK’s leading tech businesses.
The pandemic has provided windfall profits for the company. Operating profit increased 41% last year to £57.1m. Management is confident this trend can continue. The pandemic has only accelerated tech adoption worldwide, and this is unlikely to go into reverse.
That’s not to say the corporation doesn’t face challenges. Money is flooding into the sector, and competition is increasing. Softcat needs to provide the very best service to customers, or the company could lose market share. It is also exposed to risks unique to the technology sector, such as a cyber attack.
Nevertheless, I think this could be a top addition to my Stocks and Shares ISA considering its potential for growth in the long run.
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.
The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.
But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.
Rupert Hargreaves owns shares in Direct Line. The Motley Fool UK has recommended Softcat. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.