We have a new £15,240 ISA allowance to use, so what would make the perfect ISA shares? We surely don’t need great diversity in any one year, so I’d restrict it to five companies:
I’d definitely have a high-dividend utility company in my perfect ISA, and I reckon National Grid (LSE: NG) is the safest. As a “picks and shovels” operator in the sector, it’s less affected by backlashes against energy prices. Its income is also relatively predictable, and there are likely to be few surprises sprung. It’s that stability that enables National Grid to offer dividend yields exceeding 5% (on today’s price of 905p).
The best bank?
A bank would certainly be in my 2015 ISA too, and I really only see two choices — Lloyds Banking Group (LSE: LLOY) or Barclays, both of which are looking undervalued to me. Lloyds is only just back to paying dividends, but they should be ramped up over the next few years. With both banks on similar P/E valuations of around 9 to 10, I see Lloyds as the safer bet at 79p, with less chance of future problems from past practices.
One of the two big pharmaceuticals must be in my portfolio too, and there’s little to choose between GlaxoSmithKline (LSE: GSK) and AstraZeneca. But it’s Glaxo that gets my nod, because I think it’s a little out of the spotlight at the moment. Though attention is focused on Astra’s excellent turnaround, Glaxo was in a better position to start with — and with dividends exceeding 5% on the 1,624p shares, Glaxo looks marginally better value.
A merger from heaven
One of the big oilies just has to be selected, and I’d go for Royal Dutch Shell (LSE: RDSB) at 2,033p. It would have been neck-and-neck with BP, but Shell’s timely bid for BG Group will give it a leg-up in boosting its reserves when they’re cheap, including a nice chunk of LNG, and saving costs for both sets of shareholders. It could be just the consolidation the sector needed.
Finally, I’d find it hard to resist Aviva (LSE: AV) at 155p, despite already having a financial stock in my selection. But 2015 should be a strong year for insurance too, and despite a three-year gain of 80%, Aviva shares are still on a modest forward P/E of 11.5 this year, dropping to only 10 next. With the rebased dividends powering back and expected to yield 4.6% by 2016, Aviva is still too cheap to ignore.
What did I miss?
I was also tempted by BAE Systems, or one of our housebuilders which all still look seriously undervalued, or perhaps BT Group. But I think these five will be hard to beat.