I like to invest my Stocks and Shares ISA allowance as soon as possible. As such, I have been looking for potential investments ever since the new ISA allowance came into force at the beginning of April. Here are two UK shares I am planning to buy based on my research.
Stocks and Shares ISA investments
One of the great things about Stocks and Shares ISAs is that any income or capital gains earned on assets held inside one of these wrappers are entirely tax-free. I think this makes them the perfect vehicle in which to own income stocks, although this strategy may not be suitable for all investors.
LondonMetric Property (LSE: LMP) is a real estate investment trust that offers a prospective dividend yield of 3.8%. This yield is covered by income provided by the group’s rental properties.
FTSE 250 property company
What I like about the company’s portfolio is the fact that it is diversified. It owns many warehouses, which have helped it deliver a solid property return over the past 12 months. Its portfolio delivered a total return of 13.4% over the trading year to the end of March.
Its lack of exposure to retail properties also meant occupancy and rent collection was high. Occupancy was 98.7% at the end of the year and rent collection throughout the year was 98.1%.
I think these figures showcase the company’s strengths. That’s why I would buy this real estate investment trust for my Stocks and Shares ISA today.
That’s not to say the business is without its risks. Like many property developers, LondonMetric uses debt to fund its growth. This could become an issue if interest rates were to rise substantially. Higher interest rates may translate into higher interest costs, which would impact profit margins and may force management to reduce the company’s dividend yield.
Utility income
The other company I would buy is the utility provider Telecom Plus (LSE: TEP), because it has a defensive business model that stands out to me.
For example, according to its latest trading update, last year, when many businesses struggled to stay afloat, customer numbers increased 0.8%. Although this figure was small and was also down from 2.7% in the prior-year period, it’s impressive considering the environment.
Thanks to this growth, the company was able to sustain its dividend. It currently offers a dividend yield of 4.6%.
I’m optimistic that the firm can maintain this distribution, but I’m also aware that the business faces challenges.
Competition in the utility sector is growing, and this may mean Telecom Plus has to spend more money on marketing as we advance. This may impact profit growth.
Higher commodity costs may also reduce profit margins if the organisation cannot pass them on to customers.
Still, despite these risks and challenges, I would buy the company for my Stocks and Shares ISA today, considering its income potential and defensive nature.