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I’d buy this dividend payer in a Stocks and Shares ISA to aim for a million

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The Stocks and Shares ISA is a brilliantly tax-efficient way to invest in equities. Thousands of investors have even become ISA millionaires, and AJ Bell has just published a list of the FTSE 100 stocks they love most.

I already hold two of them, Lloyds Banking Group and Rio Tinto, and have two more on my shopping list, insurer Aviva and spirits maker Diageo. I will buy both, once I have the cash.

ISA investors love these FTSE 100 favourites

The remaining ISA millionaire-maker stocks are BP, Shell, Scottish Mortgage Investment Trust, GSK, HSBC and National Grid. I’d happily hold any of these, but GSK (LSE: GSK) would be my number one choice right now.

GSK is the company formerly known as GlaxoSmithKline, before it demerged its consumer healthcare business Haleon last July.

GlaxoSmithKline was a FTSE 100 Dividend Aristocrat for years, only to fall from grace. CEO Emma Walmsley froze the dividend per share at 80p for some time, while using the savings to replenish the company’s faltering drugs pipeline. I’m happy with the promise of jam tomorrow, but in this case tomorrow never seemed to come.

The demerger was designed to make GSK a pure pharmaceuticals business, without the distraction of running a consumer goods sideline. It also boosted GSK’s balance sheet, by offloading borrowings to Haleon.

It hasn’t paid off for GSK yet. Its shares are down 21.5% since the demerger, from 1,775p to 1,393p. Over one year they’re down 10.75% and up just 2.5% over five years. GSK has laboured both in its old and new guise.

That’s part of its appeal to me today. I prefer to buy stocks when they’re out of favour, rather than riding high and looking pricey. So I’m shunning ISA millionaire-makers BP and Shell, which are up 49.91% and 28.31% respectively over 12 months. I suspect I’m coming to the oil price party too late.

I want pharma exposure

Another reason I want to buy GSK is that I have no direct exposure to the pharmaceuticals sector. And I have less incentive to pluck HSBC from the ISA millionaire list since I already have Lloyds.

GSK isn’t the dividend income machine it was. Instead of a 5% or 6% yield, today I’d get just 3.1%. That’s well below the FTSE 100 average of around 4%, but it’s nicely covered 3.2 times by earnings. The forecast yield is 3.89%, with cover of 2.6. It’s heading in the right direction.

Its shares look like good value, trading at 10.1 times earnings. So can GSK finally start to deliver some share price growth?

Q4 profits did beat expectations, rising 4% to £7.4bn, helped by strong demand for its blockbuster shingles vaccine. Sterling weakness also boosted US dollar earnings. Walmsley is confident of hitting GSK’s “ambitious sales and profit outlooks for 2026”.

Much now depends on it delivering on its pipeline promises. If it falls short, my bet could prove a losing one, but I’m optimistic the turnaround will happen. GSK gives me exposure to a key sector and I’ve now added it to my buy list, behind those other ISA millionaire-makers Aviva and Diageo.

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.

The post I’d buy this dividend payer in a Stocks and Shares ISA to aim for a million appeared first on The Motley Fool UK.

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HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Harvey Jones has positions in Lloyds Banking Group Plc and Rio Tinto Group. The Motley Fool UK has recommended Diageo Plc, GSK, HSBC Holdings, Haleon Plc, and Lloyds Banking Group Plc. 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.

Motley Fool UK 2023