Despite a rally on Friday, the FTSE 100 lost ground last week to finish at 7,281 points. Only a couple of weeks ago we were above 7,500 points. However, the market hasn’t managed to fall materially below the 7,000 point level so far this year. So if this turns out to be another dip, I want to take advantage in a few ways with my Stocks and Shares ISA.
Picking up better dividend yields
The first way I want to do this is via dividend stocks. A dip in the share price acts to push up the dividend yield. As long as the dividend per share stays the same, a lower share price helps me to get more bang for my buck.
Let’s say that there’s a stock with a share price of 200p and a dividend per share of 10p. The current yield is 5%. But if the dip this week (and potentially next week) causes the price to fall to 180p, the yield has risen to 5.55%.
The bonus of adding this into my ISA is that I don’t have to pay dividend tax on the future income. Normally I have an allowance, and if I exceed this I have to pay a chunky tax rate. By keeping the dividend stocks in my ISA, I can benefit from the full amount of the payment.
An eye on the long term
The second idea I like to take advantage of in this slump is buying depressed stocks for the long run. There are currently 26 FTSE 100 stocks that have seen their share prices fall by a minimum of 30% in the past year. Some of these have fallen for good reason and I should stay away.
Yet for some names, I don’t believe the fall is completely justified. With another short-term dip, I think it represents a good opportunity for me to buy and hold. In years to come, a rebound to a fair value would allow me to profit.
In my ISA, I don’t have to pay any capital gains tax. This means that if I buy a stock now and it rallies 30% and I sell, I’ll keep all of this gain. Outside of my ISA, I could have to pay tax on it if I’ve used up my annual capital gains allowance.
Using my Stocks and Shares ISA for defensive ideas
Finally, I’m noting the companies that are outperforming the FTSE 100 during this dip. These defensive companies could be a great addition to my ISA for the troubled seas ahead. If the share price has moved higher despite the broader market coming lower, it could be a good hedge for some other shares I hold.
For example, despite the index losing ground in the past month, both Aviva and Admiral Group have posted gains. The insurance sector is one that’s quite resilient despite the economic situation for the UK.
As a result, I’m considering adding both shares to my portfolio to help ride out the rest of the year.
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.