I choose to buy UK shares in a tax-efficient Stocks and Shares ISA. And today I’m looking for the best FTSE 100 dividend-paying stocks to own before next week’s annual ISA deadline.
I like using a Stocks and Shares ISA because it allows me to invest £20,000 each tax year without having to pay a chunk of my profits to the taxman.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
With that 5 April deadline coming around the corner I’m therefore looking for last-minute stocks to add to my portfolio. I don’t have to buy shares right now with any funds I choose to park in my ISA. But I don’t see any reason to delay.
These FTSE 100 stocks have attracted my attention with their decent dividend yields. Should I buy them today?
Under pressure
J Sainsbury’s (LSE: SBRY) 4.6% dividend yield for the upcoming financial year (to March 2023) has really grabbed my attention. I believe the grocer could be considered an ideal stock to own as the cost of living crisis worsens.
After all, profits across the food retailing industry remain broadly stable during upturns and downturns.
That said, I think established grocers like Sainsbury’s could lose out to the discounters like Aldi and Lidl in the current climate.
I’ve recently described how Tesco could be a casualty of these low-cost chains as consumer value becomes increasingly important. Supermarkets could be battered by the discounters’ ambitious expansion plans too, hitting earnings and dividends further down the line.
Sainsbury’s could face a hard battle to stop revenues sinking, then, and margins slumping as it tries to compete on price.
However, intense competition isn’t the only threat to profitability. Sainsbury’s itself is facing calls from investors to raise wages due to the cost of living crisis. This adds to the upward pressure that supply chain issues are placing upon product costs.
A FTSE 100 dividend stock I’d buy
On reflection, Sainsbury’s carries far too much risk for my liking. Instead I’d much rather invest my hard-earned cash in BAE Systems (LSE: BA). Global spending on defence has been rising at its fastest rate for decades. The tragic events in Ukraine look set to supercharge demand for the sector still further.
Indeed, US President Joe Biden is about to request a massive $813bn for defence, according to sources. This is up tens of billions of dollars from what was being projected just a year ago.
BAE Systems provides a broad range of defence products to the US and UK militaries. It can therefore expect orders to soar as the West responds to escalating tension in Europe and in Asia.
A high-profile failure of its systems is a constant threat that could hammer future demand for its technology. But BAE Systems’ strong track record on this front gives me, as an investor, huge confidence. Today this FTSE 100 firm carries a healthy 3.5% dividend yield, in line with the index’s forward average.