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Why I’d buy GSK shares and this secret dividend stock for my ISA today

UK investors are very lucky when it comes to tax, in my opinion. Unless you are in a position to save more than £20,000 each year, you can put all your investments in a tax-free Stocks and Shares ISA.

This enables you to enjoy all the benefits of stock market investing without any future capital gains or income tax liability. And unlike pensions, there are no restrictions on withdrawals from an ISA.

It’s a fantastic system, I think. Today I want to look at two stocks I own that I think are ideal for long-term ISA holdings.

A 50% return in five years

Shareholders may argue that the GlaxoSmithKline (LSE: GSK) share price has been a disappointing performer over the last 20 years. And it’s true that the share price today is virtually the same as it was in October 1999.

However, investors who’ve bought within the last 10 years should mostly be in profit.

And in any case, I think that focusing on the share price alone is a mistake – Glaxo is a high-yield stock. If we include dividend payments, this pharma giant has delivered a shareholder return of 51% over the last five years alone. I think that’s very attractive.

An exciting future

GSK’s conglomerate structure combines consumer brands like Nicorette, Panadol, and Sensodyne with prescription medicines, vaccines, and specialist treatments for cancer and HIV.

Critics say that this broad focus actually results in a lack of focus, with successful units subsidising less successful activities. They argue that the group could deliver more growth – and boost shareholder returns – by splitting itself into separate pharmaceutical and consumer businesses.

Chief executive Emma Walmsley has been converted to this view and the group is gradually being prepared for a split. Existing shareholders are expected to receive shares in the new company, so will be able to choose whether they want to hold one, the other, or both.

The GSK share price has performed strongly over the last year and isn’t as cheap as it was. But the stock still offers a market-beating 4.6% yield and I think the split is likely to create a consumer business that’s valued strongly by the market.

In my view, Glaxo shares remain a good long-term buy for investors wanting a mix of income and growth.

My secret dividend stock

The next company I want to consider is one you may not be familiar with. Bloomsbury Publishing (LSE: BMY) is probably best known as the publisher of the Harry Potter books, plus a range of cookery and lifestyle titles.

The group also has a non-consumer division, but there’s no doubt that consumers are a big deal for this £195m firm. Last year, about 85% of profits came in the second half of the year, which includes Christmas.

In a half-year update today, Bloomsbury said it was confident that full-year results would be in line with expectations. That puts the stock on about 15 times forecast earnings, with a 3.3% dividend yield.

That may not seem cheap, but I rate this as a quality, specialist business. Cash generation is very strong and net cash has risen by 15% to £20.1m over the last year. This year’s dividend should be covered twice by earnings, and the payout has not been cut for 25 years.

I remain happy to hold the shares, which I rate as a long-term buy.

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Roland Head owns shares of Bloomsbury Publishing and GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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.