With the ISA deadline not far off now, I’ve been thinking about dividend stocks to buy for my Stocks and Shares ISA. Putting dividend shares in this kind of investment account can be a very effective wealth-building strategy, as all income is tax-free.
Here, I’m going to highlight two dividend stocks that strike me as great ISA buys for the 2021/22 tax year. I think these stocks could help me generate some nice tax-free passive income in the years ahead.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
A renewable energy stock with a 5%+ yield
The first dividend stock I want to discuss is Renewables Infrastructure Group (LSE: TRIG). It’s a FTSE 250 investment company that owns a portfolio of wind and solar farms across Europe and the UK.
TRIG’s recent full-year results showed that the company is benefiting from the global shift to renewable energy. For the year, profit before tax amounted to £210m versus £100m in 2020. Meanwhile, earnings per ordinary share came in at 10p versus 5.9p a year earlier.
On the back of these results, the company declared a dividend of 6.76p for 2021 (2020: 6.73p), and announced a 2022 dividend target of 6.84p. At the current share price, the forecast 2022 payout equates to a prospective yield of around 5.3%, which is certainly attractive in today’s low-interest-rate environment.
Looking ahead, management was confident that the company can continue generating solid returns for investors. “The decarbonisation agenda remains central to public policy across Europe. Renewables play an essential role in providing affordable and clean electricity. This backdrop continues to ensure a bright outlook for the company,” said TRIG Chair Helen Mahy.
It’s worth pointing out that due to its investment company structure, TRIG sometimes needs to raise capital to fund growth. This can put pressure on the share price because it dilutes existing shareholders’ holdings.
I’m comfortable with this risk, however. I think that in the long run, this company is well placed to deliver attractive total returns.
Strong dividend growth
Another dividend stock I’d snap for my ISA this year is St. James’s Place (LSE: STJ). It’s a leading provider of wealth management services in the UK.
STJ’s recent full-year results for 2021 showed that the business is doing pretty well right now. For the period, underlying cash basic earnings per share amounted to 74.6p versus 49.6p a year earlier. This enabled the group to propose a final dividend of 40.41p per share, which took the full-year dividend to 51.96p versus 38.49p in 2020. At the current share price, that equates to a yield of about 4%.
Encouragingly, CEO Andrew Croft believes demand for the company’s wealth management services is likely to remain strong in the future. “Looking forward there is no doubt in my mind that the demand for face-to-face financial advice remains as strong as ever. In fact, as we emerge from the pandemic, I believe more people will be reassessing their life plans and be more likely to seek out a trusted adviser,” he said. This leads me to believe there’s potential for further dividend growth here.
The key risk with STJ, in my view, is further stock market weakness. This could impact the group’s revenues in the near term.
Overall, however, I’m quite bullish on this dividend payer. With the stock trading on a P/E ratio of about 18, I think it’s a good time to be building a position within my ISA.
