My ISA contains a number of income shares that help me generate passive income.
Looking across the London market right now, there are quite a few shares offering what I see as attractive dividend yields.
Here are five, each yielding at least 5%, that I would be willing to buy if I had spare cash to invest in my Stocks and Shares ISA.
Should you invest £1,000 in Ds Smith right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Ds Smith made the list?
Financial services
Man Group is an investment manager that has had a good run of it over the past few years. Looking back over the past five years, for example, the Man Group share price has shot up 65%.
Despite that share price growth, the yield here is 5.2%. That is ahead of the average for the benchmark FTSE 250 index of which Man is a member. With $176bn of assets under management, I think the firm could continue to do well, although if we move back into recession, that could lead fundholders to withdraw money, hurting profitability.
Another financial services firm I would happily buy for my ISA is FTSE 100 asset manager M&G.
The yield here is much higher even than Man’s, at 9.6%. I notice that the company’s chairman spent his own money buying shares in M&G this week. Its strong brand name, client base stretching into the millions, and long asset management experience all go in its favour as far as I am concerned.
Less favourable is a similar risk to Man: rocky financial markets could see sales falling. Then again, perhaps the opposite will happen as buyers race to take advantage of recent booms in markets from AI shares to the Tokyo stock market.
Consumer products and services
No dividend is ever guaranteed, as shown by Vodafone’s plan to halve its payout per share. I hold it in my ISA already but do feel its debt pile continues to pose a risk to profits.
Even after such a cut, though, the FTSE 100 telecoms giant is set to yield 5.3%.
It has strong positions in markets across Europe, with a customer base in the hundreds of millions and exposure to the rapidly growing African mobile money market.
At 9.4%, the high yield offered by British American Tobacco (LSE: BATS) is compelling. The dividend has grown annually for decades though whether it survives the risk posed by declining cigarette sales only time will tell. The company’s strong brands and growing vaping business could be key.
Takeover target
My fifth pick would be a company that yields 5% — but might not for much longer. That is because papermaker and packaging specialist DS Smith (LSE: SMDS) looks set to be taken over by US giant International Paper, after the stateside firm edged London-listed Mondi out of the race.
For now, the yield is juicy enough to grab my attention. The underlying business looks strong to me, explaining why competitors have been battling to take it over.
The company announced this week that sales last year rose 14% and pre-tax profit soared 75%. The dividend jumped by a fifth.
If the takeover bid falls through, the DS Smith share price could fall. But a rising International Share price means it is more valuable than when it was first announced. Either way, DS Smith’s business looks attractive to me.
