Using a Stocks and Shares ISA is one of the best ways to invest in the market. Any income or capital gains earned on assets held within one of these wrappers doesn’t attract any further tax. Investors don’t even need to declare the income on their tax returns.
I try to make the most of my £20k ISA allowance every year as soon as possible. Here are five stocks I’d buy with my latest allowance today.
Stocks and Shares ISA
Thanks to the tax benefits of an ISA, I think they’re the perfect wrappers in which to own income investments.
I’d buy FTSE 100 healthcare stocks Hikma and GlaxoSmithKline with a portion of my £20,000 investment on this theme.
Hikma manufactures a range of generic, low-cost medications. Meanwhile, Glaxo is more of a healthcare conglomerate, with treatments spanning from vaccines to oncology and an extensive consumer healthcare portfolio. This mixture provides healthy cash flows to support the firm’s large dividend yield of 5.6%.
Hikma is more of a dividend growth investment. The stock offers a dividend yield of 1.5%, at the time of writing. Over the past five years, as the company’s earnings have expanded, its per-share dividend has grown at a compound annual rate of nearly 10%. As such, over the long term, I think this could be a fantastic income investment.
Of course, these assets aren’t risk-free. Dividends are paid out of profits, and if the income at Glaxo or Hikma falls, the payouts could be slashed. Any number of factors could lead to this outcome. A sudden unforeseen economic downturn, legal battle, or higher than expected costs could significantly reduce earnings power.
Despite these risks, I’d buy Glaxo and Hikma for my Stocks and Shares ISA portfolio today.
Two other income plays I’d buy are Assura and Airtel Africa. Assura owns medical facilities in the UK, which it leases to healthcare providers. Airtel owns mobile phone towers across Africa.
The stocks offer dividend yields of 3.7% and 4.9% respectively. These payouts aren’t guaranteed. Both companies also use a lot of debt to fund their operations, which could limit their ability to grow the distributions in the long run.
Still, I’d buy the equities for my Stocks and Shares ISA due to their cash flows from stable infrastructure assets.
The final company I’d buy for my £20,000 portfolio is a growth investment. Spirent Communications develops technology for the communications industry, in particular equipment used in 5G networks.
The 5G global services market is expected to grow at a compound annual growth rate of 46.2% from 2021 to 2028. I think if Spirent can grab just a tiny share of this market, it could be an excellent growth investment.
The main challenge the business faces is standing out in such a competitive market. The market may also not live up to growth expectations. This could mean Spirent’s long-term growth is lower than expected.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended GlaxoSmithKline and Hikma Pharmaceuticals. 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.