Sometimes I think we forget just how valuable the Stocks and Shares ISA allowance is. The ability to invest in shares without paying income tax and capital gains tax for life is quite something.
As the UK tax burden hits a 70-year high, the Stocks and Shares ISA allowance looks more valuable than ever.
I use mine to invest in global shares using low-cost exchange traded funds (ETFs) and investment trusts. But for the UK, I prefer individual shares.
Tax-free income inside a Stocks and Shares ISA
Inflation is rocketing, and buying dividend income shares is a good way of protecting the real value of my money. Many top FTSE 100 income stocks offer eye-catching yields, while trading at temptingly low valuations. That’s where I would target my efforts in June.
I find asset manager and insurer Legal & General Group almost impossible to resist right now. It offers an income of 7.04% a year, yet trades at just 7.56 times earnings. That would fit very nicely inside my Stocks and Shares ISA allowance.
L&G’s share price has performed poorly for years. But now it is showing signs of life, as profits recover after the pandemic. At today’s low entry price I don’t feel that I’m overpaying. I hope to benefit when it finally swings back into fashion, but I’m in no major rush. While I wait, I’ll keep reinvesting my dividends to buy more stock.
I would take my next Stocks and Shares ISA pick from the mining sector. Globally diversified metals and minerals expert Rio Tinto offers a frankly incredible yield of 11.10%, yet is valued at an equally incredible 5.4 times earnings.
Investors are worried that falling demand from China will hit the price of steel and other metals, denting revenues. A global recession would aggravate that. Yet I always expect ups and downs with commodity stocks. That’s what I would aim to hold Rio for the long term (by which I mean decades). June looks like a good time to buy it.
I’d buy this UK dividend share too
I would balance that with some defensive solidity, and make GlaxoSmithKline my final Stocks and Shares ISA pick for June. The pharmaceutical giant yields 4.62% and trades at 15.49 times earnings. Personally, I would always hold Glaxo. I would rather have bought it a year ago when the share price was around 30% lower. But I still think it offers good value today.
Glaxo chief executive Emma Walmsley is talking of a landmark year, as the group spins off its consumer healthcare unit. Its speciality medicines and vaccines are showing “good momentum”, with Q1 vaccines division sales up 36% at £1.7bn.
Let’s hope Walmsley finally rewards loyal investors by hiking the dividend. That would give me even more income, which I’d reinvest for long-term growth inside my Stocks and Shares ISA.