One of the ways I try to benefit from holding a Stocks and Shares ISA is to buy income shares I hope can pay me dividends long into the future.
If I had spare money to invest in my ISA right now, I would happily buy the three shares below.
Each is a member of the FTSE 100 index of leading companies. Each has raised its dividend annually in recent years (though past performance is not necessarily indicative of what will happen in future).
Best of all, in my view, each has a yield of at least 9.4%.
British American Tobacco
I will begin with the 9.4%-yielder British American Tobacco (LSE: BATS).
It is not often this high-yield share is seen as the poor cousin of a set of dividend payers, but in this case that is true. It actually offers a lower yield currently than the two shares I discuss below.
Still, from an income perspective, I think there is a lot to like about the Lucky Strike manufacturer.
The company has raised its payout annually for decades. That has been possible thanks to strong cash flows from a business with low production costs and high selling costs. Its collection of premium brands gives the company pricing power.
I see declining cigarette smoking rates as good for public health, but bad for the company’s sales. That is an ongoing risk, although its growing range of non-cigarette brands could help it mitigate the effect.
M&G
Asset management is a business that involves huge sums of money and one I expect to be around for the long term.
That helps explain why I like the investment case for M&G (LSE: MNG), an asset manager with millions of clients. The amount of money involved is huge. M&G ended last year with £343.5bn of assets under management and administration.
Over time, asset managers’ performances can lead to clients putting more money in, or pulling it out. I also see a weak economy as a risk. Customers may feel less inclined to tie cash up in investments if they have more pressing spending needs and limited available cash.
Still, the company has been a solid cash generator in recent years and a generous dividend payer. Currently, the dividend yield is 9.6% and the firm aims to maintain or increase its dividend per share annually.
Phoenix
I already own the two shares above. One I do not own but would happily buy if I had spare cash in my Stocks and Shares ISA is Phoenix (LSE: PHNX).
Among FTSE 100 shares, this is one of the highest yielding. With a dividend yield of 10.7%, an investment of £10,000 today would hopefully earn me around £1,070 of passive income annually. That is even before taking into account the possibility of more dividend increased like we have seen from the firm in recent years.
Phoenix’s strong position in the pensions market could help it keep doing well in future, I reckon. This complicated business does involve risks. For example, the firm’s book of mortgages could end up being costly in the event of a property crash.
But its strong cash generation potential and double-digit dividend yield make me want to buy.
