With a whole new Individual Savings Account (ISA) allowance of £15,240 coming up on 6 April, what shares should you buy? With capital gains and dividends protected from tax, a mix of growth and income shares can be a good choice. Here are three candidates to consider:
Shell
Royal Dutch Shell (LSE: RDSB)(NYSE: RDS-B.US) has been hit by the recession and then by the falling price of oil — it’s down 8% over 12 months to 2,140p, and in five years it’s only gained 16%. EPS is forecast to fall around 30% this year, but there’s a good chance that could be the bottom — analysts are expecting a 30% rebound in 2016, and the price of oil will not stay at $60 a barrel for ever.
Meanwhile there are dividend yields of around 5.6% expected. Admittedly 2015’s would not be well covered, but we should be back to healthy cover by 2016. To put that into perspective, if you filled your ISA with Shell (not that you actually would) you’d earn £843 in dividends — and the best cash ISA would get you only around £240 in interest.
With earnings forecasts for 2016 dropping Shell’s P/E to under 12, there’s a decent probability of capital gains too.
BT
BT Group (LSE: BT-A)(NYSE: BT.US) has provided a combination of income and growth over the past five years, with a share price rise of 274% to 459p, largely because of the firm’s success in delivering increasingly attractive content to subscribers — winning the rights to some Premier League football was a bit of a coup.
At the same time, shareholders have been enjoying dividend yields of around 3-4%. That’s a bit above the FTSE 100 average, and coupled with the share price rise it’s made a tasty package.
We still have growth in earnings and dividends predicted, with the P/E dropping to 13.5 based on 2016 forecasts. Future share price growth will surely be slower than in the past five years, but coupled with decent dividends I reckon BT is still a great long-term ISA prospect.
ARM
ARM Holdings (LSE: ARM) is an out-and-out growth candidate, as the share price has multiplied five-fold over the past five years to 1,191p. And though it had a couple of flat years from 2013, since October 2014 it’s put on 48%.
Can ARM keep growing? Approximately 12.1 billion ARM-based chips were shipped in 2014, and that was a 20% rise on the previous year. The Apple iPhone was released only eight years ago and today around 50% of adults own a smartphone, and The Economist recently opined that “By 2020 80% of adults will have a supercomputer in their pocket“. With the rapid growth of the so-called Internet of Things and the burgeoning numbers of chips in everything, I can see that 20% annual growth continuing for some time.