Three income stocks for your ISA from The Share Centre

1st April 2014

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High yielding FTSE 100 blue chips have dominated the shares picked for investor’s ISAs this year as the Share Centre reveals its top five.

Ten most popular equities in ISAs this tax year

Company Dividend yield % Our view
GlaxoSmithKline  4.9 BUY
BP  4.7 BUY
Royal Dutch Shell  4.8 BUY
Vodafone  4.7 HOLD
National Grid  5.0 BUY
Tesco  5.0 HOLD
Centrica  5.1 HOLD
HSBC  3.1 BUY
Aviva  3.1 BUY
Lloyds 0 HOLD

(Current dividend yield: source Bloomberg)

Graham Spooner, investment research analyst at the Share Centre says: “Our most popular ISA stocks for this tax year show investors favouring well-known blue chip companies with the potential to provide an income. As interest rates remain low the search for high yield continues and FTSE 100 companies offer strong balance sheets with reliable dividends and steady dividend growth.

“Another contributing factor is that ISA investing is more popular for the older generation, with average ISA investors being 50 years old, so the defensive characteristics of these companies appeal to this demographic. Whilst several of these companies have been popular in previous year it is interesting to see banks and utilities making an appearance in the most popular ISA purchases this tax year.”

Spooner has also picked his top three stocks.

National Grid

“Utilities are traditionally defensive stocks for investors seeking income, offering lower risk levels and dependable dividends. National Grid is the largest listed utility company in the UK and we have long been fans of the stock.

“It’s a regulated business with a prospective yield of around 5.2%. From this year the dividend will grow in line with inflation and it is set to beat it by 1% in 2014.

“Having settled its pricing structure with regulators in both the US and UK during 2013, the company is now in a much stronger position for the year ahead and management is focused on improving the return of its US operations. Also, whilst political pressures have hit others in the sector, National Grid is not as exposed to this.”

HSBC

“Income seekers in the banking sector have been hit hard in recent years and HSBC has remained a significant payer, announcing a progressive dividend policy as a future aim. Though progress may be slow, the shares appear to be a safer option than other banks and are viewed as being more conservatively managed with a better balance sheet and deposits. HSBC is the more attractive option in the banking sector, especially for income seekers, and we recommend investors drip feed into the share on weakness in the share price.

“The group is keen to promote the mix of business and geographical spread, especially the Asian franchise, which it hopes in the long run, will see it emerge from an environment it describes as “highly uncertain”. Like most banks, HSBC has seen pressure on returns from its assets, while costs have been creeping up, especially in Asia and investors should be aware it expects greater volatility in its markets in 2014.”

Royal Dutch Shell

“In recent years Royal Dutch Shell has benefitted from elevated energy prices and is going through some major capital investment programs, which should lead to cost efficiency, increased production capacity and higher cash flows.

“Despite the fact that fourth quarter earnings fell short of expectations due to higher exploration costs and weaker demand for downstream products, we believe Royal Dutch Shell represents a core holding for most portfolios due to the relatively stable cash flows and attractive dividend yield of 4.7%.”

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