Stocks and Shares ISAs are great ways for beginners and experienced investors alike to take advantage of tax breaks on any income earned through stock market investing.
Investors can put up to £20,000 in a Stocks and Shares ISA in any given tax year which will not be subject to income or capital gains tax — a really tax-efficient way of investing in the stock market.
That’s the only real difference between a Stocks and Shares ISA and an average share-dealing account, as you can do much the same with your ISA as you can with any other account — buy and sell stocks, funds and bonds.
While traditionally Stocks and Shares ISAs have been viewed as a riskier option for those looking at the different ISA options available, the historic performance of the FTSE 100 suggests otherwise.
But what shares would I buy for my ISA account? Two FTSE 100 companies currently stand out to me as having strong growth and dividend prospects over the next five years.
BAE Systems (LON:BAES) FTSE 100 defence contractor BAE Systems (LSE:BA) has seen its share price dipping recently on the back of the German government’s ban on exports to Saudi Arabia, one of the company’s biggest customers. The shares are down around 20% in the last 12 months, but I don’t see too many weaknesses in terms of earnings and dividend potential.
BAE’s most recent trading update in May commented on strong performance in its two biggest markets, the UK and US, which made up 63% of sales in 2018.
Earnings and net debt were reported to be in line with expectations, while the company said it was working alongside the UK government in order to shore up contracts in Saudi Arabia, which have been unsettled by the German export ban.
The most recent dividend reported by the company amounted to 13.2p per share, BAE maintaining its record of increasing its payout to shareholders every year since 2003. For me this represents a sign of a stable and profitable company with consistent growth.
Barratt Developments (LON:BDEV) Contrary to BAE’s recent underperformance, housebuilder Barratt Developments (LSE:BDEV) has seen its share price boosted 24% since the turn of the year. Demand for properties has remained robust despite the ongoing uncertainties caused as a result of the Brexit process as buyers have become fed up of waiting for any solid progress on the UK’s exit from the EU.
The sector has shown strong performance in 2019, and with interest rates set to remain low for the foreseeable future, demand should remain consistent. That would be the case particularly if, as expected, Boris Johnson becomes the next occupant of 10 Downing Street.
Johnson has said he will slash stamp duty as part of his post-Brexit budget, sending Barratt and its fellow housebuilders Taylor Wimpey (LON:TW), Persimmon (LON:PSN) and Berkeley Group higher.
Add to that a current dividend yield of around 8% including specials, Barratt would be a sure thing for my Stocks and Shares ISA today at 575p.
Conor Coyle has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019