My Stocks and Shares ISA is a great way to invest up to £20,000 every year without worrying about capital gains tax. While I strive for a diverse portfolio, I’m set on using future allowances to create an income stream through dividends. I’m going to see if it’s possible to derive the equivalent of over £100 per month. Let’s take a closer look.
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.
High yields, growing profits
First, City of London Investment Group (LSE:CLIG) has seen its share price fall 18.8% in the past year. It’s down 10.5% in the last three months. At the time of writing, the shares are trading at 420p.
Currently, the company has a dividend yield of 7.6%. Last year the global asset management firm paid a dividend of 33p per share.
Using half of my allowance I could buy 2,380 shares. Multiply this by the dividend payment and I could be looking at a potential annual income of £785.
It’s important to note, however, that dividend policies can be subject to change at some future date.
And funds under management fell to £7.6bn for the year ended June 2022. The year before, this figure stood at £8.3bn. This decline has been caused in a large part by rising interest rates and inflation.
Nevertheless, the business reported that net profit rose to £18.1m from £17m over the same period.
Speedy earnings growth
Second, shares in Halfords (LSE:HFD) have fallen 52% in the last year and they’re up 17% in the past month. Currently, they’re trading at 170p.
For the year ended April, the motoring and cycling retailer paid a dividend of 9p. This equates to a dividend yield of 5.2%.
With my remaining £10,000, I could buy around 5,848 shares. Multiplied by the dividend per share, this results in an annual payment of £526.
Between 2018 and 2022, earnings per share (EPS) grew from 29.6p to 35.5p. By my calculations, this results in a compound annual EPS growth rate of 3.7%. While this isn’t particularly exciting, it’s consistent.
It’s worth noting, however, that this growth is not guaranteed in the future.
There’s also the risk that the customer base continues to decline in the midst of the cost-of-living crisis. There’s a possibility that this could negatively impact future balance sheets.
On the other hand, revenue was up 6% year-on-year, to £1.37bn. This was largely due to the sale of products related to electric vehicles and e-scooters.
Overall, my calculations suggest that I could get £1,311 per year in dividend payments by investing in these two companies. This is the equivalent of just over £100 per month. I find this attractive, and I’ll deploy this plan during the next tax year, when my £20,000 allowance resets.
The post How I’d invest £20,000 in a Stocks and Shares ISA to target £100 in monthly income appeared first on The Motley Fool UK.
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Andrew Woods has no position in any of the shares mentioned. The Motley Fool UK has recommended City of London Investment Group. 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.