Investing in quality FTSE shares is a proven strategy for building long-term wealth. And leveraging the power of a Stocks and Shares ISA to do it is even smarter, shielding any capital gains and dividends from the grasping fingers of the tax man.
Of course, getting started on an investing journey’s quite a daunting task. And when I first started, I made the classic mistake of chasing flashy, extremely risky penny stocks, mistaking luck for skill, and later losing almost all my starting capital.
Having learned the hard way, I now know that one of the best approaches for new ISA investors is focus on boring-but-durable, high-quality companies with large diversified revenues and reliable cash flows.
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.
Luckily, the FTSE 100 index is filled with companies that meet these criteria, including…
1. AstraZeneca: defensive pharma
AstraZeneca‘s (LSE:AZN) one of the largest pharmaceutical and biotech groups in the world. And its size grants a lot of competitive and structural advantages.
The pharmaceutical industry’s among the most complex. Beyond having to navigate stringent regulations, drug development’s exceptionally expensive, takes decades and, to top things off, up to 95% of drug candidates never make it to market.
But for established players like AstraZeneca, this risk is significantly reduced through diversification.
Rather than being reliant on a single drug like most young biotechs, the firm has hundreds of products both in development and on the market. And since healthcare demand doesn’t wane during times of economic crisis, its cash flows have historically been impressively resilient, even during recessions.
Does that make it risk-free? Of course not.
Patents on drugs don’t last forever. And like many of its peers, several critical ones for blockbuster drugs are approaching expiration. So if AstraZeneca isn’t able to replace this lost revenue with new drugs, the firm’s profits could take a beating.
Regardless, with a long list of drug candidates approaching the end of Phase 3 trials backed by solid efficacy, that’s a risk that might be worth considering.
2. Howden Joinery: steady compounding
Howden Joinery‘s (LSE:HWDN) another boring but dependable stock that could fit nicely into a new portfolio. The fitted kitchen and bedroom designer works exclusively with contractors, supplying all the components and designs needed for homeowners to renovate and modernise their homes.
Renovation demand Is obviously a lot more cyclical compared to healthcare. But over the last few years, Howden’s once again demonstrated the resilience of its business model.
By supplying top-quality designs and materials, the firm’s developed a premium reputation that generates pricing power both for itself and contractors. Subsequently, professional builders are often keen to promote the company’s offer, acting essentially as a free salesforce.
At the same time, since it only deals with professionals, Howden doesn’t need to lease expensive high street property. Instead, it operates out of depots located in industrial estates where rents are cheaper, and access is easier.
The result is a highly cash-generative enterprise that’s steadily taking market share.
Its operations are still highly sensitive to cyclical shifts within the UK housing market. And during previous market downturns, revenue and earnings growth have temporarily stalled. But with a track record of solid execution, these risks may still be worth taking, in my opinion.
