With the annual deadline for contributions to ISAs just days away, I have been thinking about what I would do if I had any spare money to invest right now.
I am tempted by quite a few blue-chip FTSE 100 shares I think offer a combination of solid business prospects, attractive valuations and juicy dividend prospects.
Here are three I would happily add to my ISA in coming weeks.
9.2% yield: Phoenix Group
A yield of over 9% sounds high for a blue-chip company. But several FTSE 100 shares currently offer that.
One is pensions and financial services group Phoenix Group (LSE: PHNX). In the past five years it has raised its dividend annually and paid out a total of £2.40 per share. That is equivalent to 44% of its current share price.
Share performance has been weaker, with Phoenix falling 20% over the past five years. That may reflect some of the ongoing risks to the business, such as claim settlement inflation and changing investment returns hurting profitability. Last year, the company made a post-tax loss of £2.2bn.
But I see Phoenix as a well-run and experienced business in an area with strong customer demand. Investment returns can obscure the short-term picture but, over a longer timeframe, I expect Phoenix to do well.
7.8% yield: British American Tobacco
I already own British American Tobacco (LSE: BATS) in my portfolio of lead index shares. The share price has fallen 13% in the past year, while the annual dividend has increased yet again. That means the shares now offer what I see as an attractive yield of almost 8%.
Could there be further growth ahead? After all, the firm has said it plans to keep raising dividends annually, as it has for over two decades. I am optimistic this can continue, thanks to the business’s mammoth cash flows.
But dividends are never guaranteed and I see a couple of important red flags. One is net debt of just under £40bn. Another is long-term decline in the cigarette business.
Against that though, the Pall Mall brand maker does still generate large revenues from cigarettes even as volumes decline. It also has pricing power, so it can try to mitigate the impact of falling revenues by raising prices.
The firm’s price-to-earnings (P/E) ratio of under 10 looks cheap to me.
5% yield: Sainsbury’s
Since October, the Sainsbury’s (LSE: SBRY) share price has surged by over 50%. But that still only leaves it close to where it was 12 months ago – and just 8% higher over the past five years.
With a P/E ratio of around 10, I see the shares as attractively valued.
Sainsbury’s benefits from a large customer base, strong brands, and resilient demand. I think its Argos brand format has strong potential that has not been fully realised. That could help the supermarket chain expand its reach in an increasingly digital age. With a dividend yield of 5%, the shares would offer a welcome boost to my passive income streams.
One risk I see is ongoing pressure on profit margins in the grocery trade. However, I think a unique brand and large non-grocery business could help Sainsbury’s compete even as rivals try to eat its breakfast.
