Rising prices mean that I’m more focused than ever on generating as much income as possible from my Stocks and Shares ISA.
I’m targeting a dividend yield from my ISA portfolio that’s above the FTSE 100 average of 4%. In this piece, I’m going to look at five shares I’d buy today with an average yield of 6%.
Of course, I wouldn’t rely on just five shares for an income. I prefer to diversify a little more, so I tend to hold around 20 dividend shares in my ISA.
A rock solid 7.7% yield?
One of the core holdings in my portfolio is FTSE 100 financial heavyweight Legal & General. This savings and insurance group manages more than £1trn of assets and administers pensions and investments for millions of people.
Legal & General is highly profitable, and its dividend hasn’t been cut since 2009.
The main risk I can see as a shareholder is that the group’s finances are huge and complex. As an outsider, I just have to trust that the company has done its sums right.
Legal & General shares offer a yield of 7.7% today. On balance, I think they’re too cheap, so I’m happy to keep buying them for my ISA portfolio.
Consumer stocks for a Stocks and Shares ISA
The next two shares I’ve chosen provide direct exposure to consumers in the UK and overseas.
The first is housebuilder Berkeley Group. This business has a long track record of correctly timing the property market and planning for the next cycle.
By buying Berkeley Group, I’m betting on the company’s ability to continue operating successfully in a changing housing market. There’s no guarantee of this, but the shares look affordable to me and offer a well-supported 5.5% yield. I’d be happy to own them.
My other consumer pick carries some ethical and regulatory risks. Imperial Brands is the FTSE’s second-largest tobacco stock. It’s unloved by ESG-minded investors and it operates in a shrinking market.
However, Imperial’s performance is improving, and the company’s shares looks dirt cheap to me, on just 6.5 times forecast earnings. That means the stock offers a well-supported 8.6% dividend yield at today’s prices. I hold Imperial in my income portfolio.
Dividends from online retail
The last two companies I’ve chosen are both potential winners from the long-term growth of internet retail.
Royal Mail has performed better than many investors expected since a change of management in 2020. However, the shares have fallen 30% since last summer, perhaps because of the risks posed by rising costs and a slow down in parcel growth.
The stock’s slide has left Royal Mail trading on less than six times forecast earnings, with a dividend yield of 6.6%. That looks cheap to me, so I’d be happy to snap up some RMG shares for my ISA.
My other stock is a company I’ve held for a while. Cardboard packaging group DS Smith has a strong focus on recycling and e-commerce. I think it should be a long-term winner.
A recession could cause demand for DS Smith’s products to slump, which is a risk. But management are experienced, and the company has performed well through the pandemic. The shares have a forecast yield of 5% for the current year. I’d buy more at this level.