Investing with a Stocks and Shares ISA is one of the most efficient ways for UK investors to put their money to work.
By buying shares with bulky dividends through an ISA, investors can skip out of getting taxed on the income they receive. That means more money goes into their pockets instead of HMRC’s. That’s a touch.
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.
If I had spare cash to invest in the months ahead, here are two FTSE 100 shares I’d happily buy for my ISA. Both have dividend yields of at least 5%.
NatWest
Let’s get the ball rolling with NatWest (LSE: NWG). Its share price spiked nearly 12% recently after the bank released its latest set of half-year results. Yet, having pulled back since, I see a ton of value in the stock.
Investors were clearly happy with NatWest’s update. Operating profit for Q2 rose by 27.7% to £1.7bn, meaning its first-half operating profit came in at £3bn. It also lifted its full-year guidance for a number of metrics, including its return on tangible equity.
It’s easy to see why market spectators were flocking to snap up some shares. But the stock still has an attractive valuation today, in my view. It trades on 6.9 times earnings and 8.8 times forward earnings. That looks undervalued on paper.
With higher profits, the business raised its interim dividend to 6p, up 9% year over year. It has also completed £1.2bn of share buybacks in the first half of the year. Today, the stock yields 5.3%, comfortably above the FTSE 100 average.
Ongoing economic uncertainty remains a threat to banks. A sudden rise in inflation could see the market throw a tantrum. What’s more, falling interest rates will squeeze banks’ margins.
But with its cheap valuation and enticing yield, I think NatWest shares could be a smart stock for investors to consider today.
BP
Second on the list is oil and gas giant BP (LSE: BP.). Like NatWest, it recently updated investors with its first-half performance. One of the standout aspects was a 10% increase in its half-year dividend.
The stock yields a chunky 5%. Last year, management broadcast its intention to buy back up to $14bn worth of shares by the end of 2025. It’s on track to have completed $7bn of that by the end of this year.
Like NatWest, BP also looks like good value. It’s trading on 7.8 times forward earnings. That’s below the FTSE 100 average of 12.
As the world moves away from traditional fossil fuels, that will no doubt pose a massive challenge for BP. It has pumped large amounts of investment into renewable energy. So far, its success rate’s been mixed. Furthermore, BP’s a cyclical stock. Its share price performance tends to mirror the price of oil.
But with demand set to rise over the next decade, that could bode well for BP. The stock’s remained fairly stagnant in recent years. But even if we don’t see much share price growth, I’ll happily collect the juicy dividend on offer, which has been rising over the last couple of years.
The post I’d buy these 2 quality stocks to make passive income with an ISA appeared first on The Motley Fool UK.
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More reading
Dividend up 10%! Is the BP share price just too low?
NatWest, an outperforming dividend stock I’d buy back in a flash
As the NatWest share price jumps 7% on H1 results, here’s what you need to know
The BP share price is down 15% in 3 months. Time to buy?
2 FTSE 100 stocks that are primed to rally thanks to using AI
Charlie Keough has positions in Bp P.l.c. 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.
