I’d buy this dividend payer in a Stocks and Shares ISA to aim for a million

Stocks and Shares ISA millionaires are keen on this FTSE 100 dividend stock despite its recent performance. I’m also keen to add it to my portfolio.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young black woman using a mobile phone in a transport facility

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Stocks and Shares ISA is a brilliantly tax-efficient way to invest in equities. Thousands of investors have even become ISA millionaires, and AJ Bell has just published a list of the FTSE 100 stocks they love most.

I already hold two of them, Lloyds Banking Group and Rio Tinto, and have two more on my shopping list, insurer Aviva and spirits maker Diageo. I will buy both, once I have the cash.

ISA investors love these FTSE 100 favourites

The remaining ISA millionaire-maker stocks are BP, Shell, Scottish Mortgage Investment Trust, GSK, HSBC and National Grid. I’d happily hold any of these, but GSK (LSE: GSK) would be my number one choice right now.

GSK is the company formerly known as GlaxoSmithKline, before it demerged its consumer healthcare business Haleon last July. 

GlaxoSmithKline was a FTSE 100 Dividend Aristocrat for years, only to fall from grace. CEO Emma Walmsley froze the dividend per share at 80p for some time, while using the savings to replenish the company’s faltering drugs pipeline. I’m happy with the promise of jam tomorrow, but in this case tomorrow never seemed to come.

The demerger was designed to make GSK a pure pharmaceuticals business, without the distraction of running a consumer goods sideline. It also boosted GSK’s balance sheet, by offloading borrowings to Haleon.

It hasn’t paid off for GSK yet. Its shares are down 21.5% since the demerger, from 1,775p to 1,393p. Over one year they’re down 10.75% and up just 2.5% over five years. GSK has laboured both in its old and new guise.

That’s part of its appeal to me today. I prefer to buy stocks when they’re out of favour, rather than riding high and looking pricey. So I’m shunning ISA millionaire-makers BP and Shell, which are up 49.91% and 28.31% respectively over 12 months. I suspect I’m coming to the oil price party too late.

I want pharma exposure

Another reason I want to buy GSK is that I have no direct exposure to the pharmaceuticals sector. And I have less incentive to pluck HSBC from the ISA millionaire list since I already have Lloyds.

GSK isn’t the dividend income machine it was. Instead of a 5% or 6% yield, today I’d get just 3.1%. That’s well below the FTSE 100 average of around 4%, but it’s nicely covered 3.2 times by earnings. The forecast yield is 3.89%, with cover of 2.6. It’s heading in the right direction.

Its shares look like good value, trading at 10.1 times earnings. So can GSK finally start to deliver some share price growth?

Q4 profits did beat expectations, rising 4% to £7.4bn, helped by strong demand for its blockbuster shingles vaccine. Sterling weakness also boosted US dollar earnings. Walmsley is confident of hitting GSK’s “ambitious sales and profit outlooks for 2026”.

Much now depends on it delivering on its pipeline promises. If it falls short, my bet could prove a losing one, but I’m optimistic the turnaround will happen. GSK gives me exposure to a key sector and I’ve now added it to my buy list, behind those other ISA millionaire-makers Aviva and Diageo.

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Harvey Jones has positions in Lloyds Banking Group Plc and Rio Tinto Group. The Motley Fool UK has recommended Diageo Plc, GSK, HSBC Holdings, Haleon Plc, and Lloyds Banking Group Plc. 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.

More on Investing Articles

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »