For British investors, a Stocks and Shares ISA remains one of the best ways to grow wealth over time. With an annual allowance of up to £20,000, all dividends and capital gains are completely tax-free — which, over decades, can make a staggering difference to returns.
But while the benefits of this tax shelter are clear, deciding what to actually put inside one is another matter. Interestingly, data on ISA millionaires — those fortunate few whose ISAs have grown to over £1m – shows there are certain FTSE 100 stocks that crop up again and again. It’s not hard to see why. These are typically large, established businesses offering reliable dividends, decent growth potential and a strong foothold in their industries.
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Let’s take a look at three of the most common names: Shell, Lloyds, and GSK (LSE: GSK).
Shell
Roughly 39% of ISA millionaires hold Shell shares, making it by far the most popular stock among Britain’s wealthiest ISA investors. As the third-largest company on the FTSE 100 by market capitalisation, Shell’s sheer scale is hard to ignore. It trades on a fairly modest price-to-earnings (P/E) ratio of 15.4, suggesting the stock’s reasonably valued given its earnings power.
Still, it hasn’t been without bumps. Shell’s market-cap’s down nearly 10% over the past year, and it recently had to amend some filings after failing to comply with US SEC regulations — a minor black mark on governance. Even so, Wells Fargo just last week reiterated its Overweight rating, seeing long-term value in the energy giant.
Lloyds Banking Group
Around 32% of ISA millionaires hold Lloyds in their portfolios. It’s long been one of the UK’s favourite banking stocks, often viewed as a proxy for the broader health of the British economy. Lloyds trades at a low price-to-book ratio of 0.98, and sports a solid operating margin of 23.8%. For income seekers, there’s the appeal of a 4.2% dividend yield with an unbroken run of payments stretching back 11 years.
That said, it isn’t without risks. Lloyds is currently under investigation over possible car finance mis-selling, which could turn costly if hefty fines emerge. Still, many investors seem prepared to look past these issues given its track record and steady payouts.
GSK
Also appearing in about 32% of millionaire ISAs, pharmaceutical giant GSK is widely favoured for its dependable income stream. It offers a 4.4% dividend yield, comfortably supported by an 80% payout ratio. It’s been paying and gradually raising dividends for over 20 years at an average rate of 5% a year. This is where I see the real long-term appeal in the stock and why I aim to hold it in my passive income portfolio indefinitely.
Currently, its valuation looks a bit rich, trading on a P/E ratio of 18.44 and P/B of 4. That might put off new investors as it could limit near-term growth. If it fails to impress in an upcoming earnings call, sentiment could sour, hurting profits – and the share price. Its debt-to-equity ratio of 1.3 is also slightly high, although overall liabilities remain well covered by assets.
Still, with decent profitability and an impressive 22.5% return on equity (ROE), I think GSK remains a solid dividend stock that’s worth considering for an ISA.
