I’d buy these 2 quality stocks to make passive income with an ISA

Footsie constituents BP and NatWest both have juicy dividend yields. This Fool breaks down why he’d happily buy them for his ISA today.

| 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.

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.

Investing with a Stocks and Shares ISA is one of the most efficient ways for UK investors to put their money to work.

By buying shares with bulky dividends through an ISA, investors can skip out of getting taxed on the income they receive. That means more money goes into their pockets instead of HMRC’s. That’s a touch.

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 £1,000 in Filtronic Plc 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 Filtronic Plc made the list?

See the 6 stocks

If I had spare cash to invest in the months ahead, here are two FTSE 100 shares I’d happily buy for my ISA. Both have dividend yields of at least 5%.

NatWest

Let’s get the ball rolling with NatWest (LSE: NWG). Its share price spiked nearly 12% recently after the bank released its latest set of half-year results. Yet, having pulled back since, I see a ton of value in the stock.

Created with Highcharts 11.4.3NatWest Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Investors were clearly happy with NatWest’s update. Operating profit for Q2 rose by 27.7% to £1.7bn, meaning its first-half operating profit came in at £3bn. It also lifted its full-year guidance for a number of metrics, including its return on tangible equity.

It’s easy to see why market spectators were flocking to snap up some shares. But the stock still has an attractive valuation today, in my view. It trades on 6.9 times earnings and 8.8 times forward earnings. That looks undervalued on paper.

With higher profits, the business raised its interim dividend to 6p, up 9% year over year. It has also completed £1.2bn of share buybacks in the first half of the year. Today, the stock yields 5.3%, comfortably above the FTSE 100 average.

Ongoing economic uncertainty remains a threat to banks. A sudden rise in inflation could see the market throw a tantrum. What’s more, falling interest rates will squeeze banks’ margins.

But with its cheap valuation and enticing yield, I think NatWest shares could be a smart stock for investors to consider today.

BP

Second on the list is oil and gas giant BP (LSE: BP.). Like NatWest, it recently updated investors with its first-half performance. One of the standout aspects was a 10% increase in its half-year dividend.

Created with Highcharts 11.4.3Bp P.l.c. PriceZoom1M3M6MYTD1Y5Y10YALL9 Apr 20208 Apr 2025Zoom ▾May '20Jan '21Sep '21May '22Jan '23Sep '23May '24Jan '25Jul '20Jul '20Jan '22Jan '22Jul '23Jul '23Jan '25Jan '25100200300400500600www.fool.co.uk

The stock yields a chunky 5%. Last year, management broadcast its intention to buy back up to $14bn worth of shares by the end of 2025. It’s on track to have completed $7bn of that by the end of this year.

Like NatWest, BP also looks like good value. It’s trading on 7.8 times forward earnings. That’s below the FTSE 100 average of 12.

As the world moves away from traditional fossil fuels, that will no doubt pose a massive challenge for BP. It has pumped large amounts of investment into renewable energy. So far, its success rate’s been mixed. Furthermore, BP’s a cyclical stock. Its share price performance tends to mirror the price of oil.

But with demand set to rise over the next decade, that could bode well for BP. The stock’s remained fairly stagnant in recent years. But even if we don’t see much share price growth, I’ll happily collect the juicy dividend on offer, which has been rising over the last couple of years.

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

Charlie Keough has positions in Bp P.l.c. The Motley Fool UK has no position in any of the shares mentioned. 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

Investing Articles

1 key fact to remember in this stock market correction

This writer takes a look at a FTSE 100 investment trust that is catching his eye after the recent massive…

Read more »

Investing Articles

I was wrong about the Tesla stock price!

Tesla stock's been affected more than most by ‘Liberation Day’. But our writer has other concerns about Elon Musk’s company.

Read more »

Investing Articles

What’s happening to the Rolls-Royce share price now?

The Rolls-Royce share price has taken a knock from US trade tariffs, but it's still gained more than 50% in…

Read more »

Investing Articles

10 UK shares that are 50% or more off their 52-week highs

These UK shares have been hit hard. And Edward Sheldon believes there could be some opportunities for those with a…

Read more »

Man smiling and working on laptop
Investing Articles

Could IAG’s share price surge over the next year? These analysts think so!

IAG's share price has sunk, reflecting growing concerns over the impact of trade wars on airline profits. Is this a…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

£10,000 invested in Apple shares last week is now worth…

Apple shares are down 18% over the past week. It’s a truly phenomenal downward movement, but investors may want to…

Read more »

Investing Articles

Are shares like Tesco a safe haven for investors?

Christopher Ruane sees a lot to like about Tesco shares. But does he see them as a safe heaven in…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

The 2025 stock market sell-off could be a once-in-a-decade opportunity to build wealth in an ISA

If a long-term investor has cash sitting in an investment ISA, now could be a good time to put some…

Read more »