The Stocks and Shares ISA is an excellent product investors can use to target long-term wealth. These tax-efficient products allow investors to grow their money free from capital gains and dividend taxes, boosting their overall returns.
ISAs are gaining rapidly in popularity as capital gains rates rise and dividend tax allowances head the other way. According to CACI, the amount of money held in adult Cash ISAs rose 12% year on year between January and October 2024, to £38.5bn.
That compares with £9.5bn for adult non-ISA savings accounts.
But while Cash ISAs are basically risk-free, the returns they generate tend to be far lower than what Stocks and Shares investors enjoy. Allocating money to both — using a ratio that balances one’s risk tolerance and financial goals — can help investors build wealth without the worry.
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.
But how does one get started given the wide selection of shares, funds and trusts listed on the London Stock Exchange and overseas?
Here’s one top stock I think new (and existing) ISA investors should seriously consider.
A share I hold
Housebuilder Taylor Wimpey (LSE:TW.) continues to face huge uncertainty in the New Year.
This mainly reflects the future direction of interest rates, a key factor in homebuyer affordability. The Bank of England may be tempted to slash its benchmark to support the ailing economy. But its appetite may be tempered if inflationary pressures remain stubbornly high.
Yet I still think Taylor Wimpey could potentially be a top pick for long-term investors. This is why I hold the FTSE 100 share in my own Stocks and Shares ISA.
Looking good
Demand for new homes should continue its inexorable rise as Britain’s population rapidly grows. Homebuilders will get a better chance to capitalise on this too. If government reforms to development planning are signed off, it will allow 1.5m new homes in the five years to 2029.
And regardless of the aforementioned uncertainty, Taylor Wimpey looks in good shape to keep paying the big dividends it’s known for.
Firstly, the estimated dividend for 2025 is covered 1.9 times by expected earnings. This is just below the widely regarded safety benchmark of 2 times and above.
Taylor Wimpey has a strong balance sheet it can use to keep paying large dividends as well. That’s the case even if earnings disappoint. Net cash was a whopping £584m as of June.
9% dividend yields
While risks remain, a swathe of strong data from the housing market market also supports the Footsie firm’s dividend outlook for this year. This includes fresh research from Propertymark this week.
According to the trade body, the average number of sales per member branch rose to nine in November. That’s the highest number for more than three years. It also said the number of new registered buyers per branch reached two-year peaks.
Against this backdrop, City analysts believe Taylor Wimpey’s earnings will steadily rise in 2025 and 2026 after last year’s expected fall, leading to fresh dividend growth. So the yields on the housebuilder stand at a mighty 9% and 9.2% for this year and next, respectively.
I think Taylor Wimpey is a great dividend stock to consider for a starter portfolio.
