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A Stocks and Shares ISA can be a great tool for investors looking to earn passive income. But the deadline for using the annual contribution limit of £20,000 is 5 April.
Fortunately, I think there are some attractive opportunities in UK shares at the moment. A couple in particular stand out to me as stocks for income investors to consider buying this financial year.
Everyday products
Unilever (LSE:ULVR) has recently announced its intention to divest its underperforming ice cream division. And I think this could be a very smart move.
Aside from being energy – and therefore, capital-intensive, ice cream is the number one food that users of GLP-1 drugs cut back on. Trying to reinvigorate growth in that area might therefore be hard.
In an industry where switching costs are virtually non-existent, there’s a constant risk of customers trading down for their everyday essentials. This is especially true in an inflationary environment.
That’s a risk with the company, but it’s worth noting that Unilever is no stranger to this issue. And the firm has been consistently finding ways to increase its dividend for a long time now.
I’d expect more of the same going forward as the business focuses on its strongest brands. Furthermore, a starting dividend yield of 3.75% doesn’t look at all bad to me.
Houses
Shares in The PRS REIT (LSE:PRSR) currently have a dividend yield of just over 5%, which is enough to catch my attention. The company is essentially an attractive way of being a buy-to-let landlord.
The firm owns and leases a portfolio of houses, which it buys directly from developers. Its occupancy and rent collection metrics are outstanding and it looks to me like it has significant scope to grow.
One potential risk is the possibility of changes in rental housing standards. The PRS REIT’s portfolio is well within current guidelines, but if this changes, it could have to make upgrades to its properties.
Nonetheless, there’s a lot to like about the company. Crucially, it operates in a market where demand comfortably outstrips supply and there seems to be little sign of this changing any time soon.
I’m expecting The PRS REIT to be a great source of passive income for investors for some time to come. And buying shares in a Stocks and Shares ISA is a great way to avoid tax on those dividends.
Taxes
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.
With the threshold for dividend tax coming down this month, investing in a Stocks and Shares ISA has never been more important. And any of this year’s contributions not used can’t be carried over.
Looking ahead, interest rates appear set to fall – the only question is how far and how fast. I expect that to cause share prices to rise, so I’d look to lock in some attractive dividend yields while I can.
Both Unilever and The PRS REIT look to me like stocks that can provide reliable dividend income for years to come. If I had the opportunity, I’d be very happy to buy them in my own ISA.