A Stocks and Shares ISA is a great vehicle for both medium-term and long-term investing. It allows all investments within the account to grow free from capital gains and income tax. Unsurprisingly I’ve found the use of this type of ISA appealing and consequently have looked for new shares to include. I tend to focus primarily on long-term investing, looking for good-value companies with solid fundamentals.
Due to the longer duration of ISA-focused investments, I like to look for companies that pay a good dividend yield. I want companies that have paid an above-average dividend consistently for several years, along with growing it annually. The aim of this approach is that the beauty of compounding can occur within the ISA, allowing me to build up a significant return over the years.
The first share on my list is Inchcape (LSE: INCH), a distributor of vehicles in the UK, Europe, and Asia. After a strong 2021 with price growth of over 41%, the company struggled in 2022, falling 16.8%. Despite this, the underlying fundamentals are very appealing, with strong cash generation. The company also has low levels of debt, and significant forecast earnings growth.
The main reason for my interest in the company is the yield of 3%. It is also forecast to hit 3.7% next year. The dividend has been paid consistently for 12 years and is covered by earnings per share (EPS) 2.5 times. This is a good sign and indicates the dividend is relatively safe.
It is, of course, essential to note that profit margins are fairly low, which could cause issues if turnover growth begins to slow. Additionally, the dividend was reduced considerably in 2020 and has only grown over the last year, so this will be important to watch in case it is reduced again.
Nonetheless, the company still represents a good long-term investment opportunity. I would therefore consider adding this share to my Stocks and Shares ISA in 2023.
The second share on my list is Glencore (LSE: GLEN), one of the world’s largest commodity traders and producers. The company has had an extremely rapid share price rise over the last two years, gaining 60.9% in 2021 and 40% in 2022. Furthermore, underlying fundamentals are impressive, with solid cash flow, reasonable profit margins, and significant growth forecasts. Turnover is expected to increase by over 30% next year, and earnings per share (EPS) is forecast to grow by a massive 187%.
I find the yield of 4.4% very appealing, more so as it is expected to hit 9.6% next year. This forecast growth is impressive, especially given that the dividend has been paid consistently for the last 11 years. It is also forecast that dividend cover will reach 2.7, indicating that EPS can sustain this new dividend level.
It is important to note that earning margins are pretty low, even after doubling from the three-year average level. Also, debt levels were very high over the last three years and are still significant at almost 47% of market capitalisation.
However, I believe that the company’s forecast dividend growth represents a good opportunity for my Stocks and Shares ISA. Therefore I would be keen to add the company to my portfolio in 2023.
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.
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Gabriel McKeown 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.