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2 UK shares I’d buy for my ISA right now

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With economies beginning to emerge from the suppressing effects of the coronavirus pandemic, I think it’s a good time to buy UK shares. And the ISA allowance renews on 6 April. So I’m topping up to make the most of my existing 2020/21 allowance.

Structural growth drives this UK share

One stock I’m keen on is FTSE 100 packaging company DS Smith (LSE: SMDS). The business suffered a dent in profits last year because of the pandemic. However, City analysts expect a bounce-back in earnings in the trading year to April 2022 of around 20%.

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Looking ahead, the outlook is optimistic. DS Smith supplies the fast-moving consumer goods and e-commerce sectors where it is seeing decent long-term growth. In December, the firm said it is “excited” about the structural growth drivers for the corrugated packaging it supplies. And “a number” of trends have been accelerated by the Covid-19 pandemic.

The business is expanding abroad and there’s been decent progress in the US. But constant reinvestment in operations has led to a fair pile of debt on the balance sheet. And, of course, DS Smith isn’t the only player in the packaging sector. It’s possible that competition could affect profits in the years ahead.

Nevertheless, with the share price near 406p, the forward-looking earnings multiple is just over 14 for the trading year to April 2022. And the anticipated dividend yield is around 3.5%. That valuation looks fair rather than cheap to me. But I’m tempted to embrace the risks and hold the stock as part of a long-term diversified portfolio.

A strong niche in a defensive sector

I think DS Smith could sit well alongside a few shares in FTSE 250 company Tate & Lyle (LSE: TATE). The firm provides food and beverage ingredients to industrial markets worldwide. And in February, it posted an 8% increase in overall revenue for the three-month period to 31 December 2020.

Despite the pandemic, the company expects the full-year adjusted profit before tax to come in “modestly ahead” of the prior year. The trading year ends on 31 March and the directors predict that adjusted earnings per share will be “well ahead” compared to the year before.

I think the expected figures demonstrate the resilience of the business. The food sector has defensive characteristics, and Tate & Lyle occupies a strong niche within it. We can see evidence of the stability of the business in the multi-year record of operating cash flow. And this has led to a dividend rising by modest low-single-digit percentages each year.

With the share price near 746p, the forward-looking earnings multiple is a little over 13 for the trading year to March 2022. And the anticipated dividend yield is around 4%. I’m tempted to buy the stock and hold for the dividend. However, the rate of dividend growth has been pedestrian. And earnings have been volatile in the past, despite the steady cash flow.

I think the biggest risk with Tate & Lyle is the slow pace of growth. If cash flow and earnings slip, I could see the valuation contract. And I’d then likely lose money from the falling share price even if the firm keeps up the dividend payments. Nevertheless, I see the company as a solid dividend payer and would be glad to have the stock in my ISA now.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended DS Smith. 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.