LONDON — You love your money. You’ve worked hard for it, after all. If you’ve taken the wise step to open and fund your Stocks & Shares ISA this year, congratulations.
So, what should you look for in shares to fill your ISA with? If you’re like me, you want shares that won’t give you any heartburn — the kind you can set in your portfolio and then leave them be for a while.
The formula for finding shares that will give you some peace of mind doesn’t need to be complicated. I argue that you should look for:
Big, stable companies with lasting power;
Established brands with competitive advantage;
Shares that will pay you consistent income — and have the balance sheets to back that dividend.
Here are four set-and-forget share ideas for you this ISA season.
Trait 1: Size and stability
GlaxoSmithKline plc (ADR) (NYSE:GSK) is a massive, 72 billion-pound company with a long tenure in the pharma industry and a strong history of returning cash to shareholders. Though not impossible, wild share-price swings in a company like Glaxo are unlikely.
The pharma industry has been a bit out of favor recently, with patents lapsing and governments tightening their spending in the sector.
But I reckon GlaxoSmithKline plc (ADR) (NYSE:GSK) doesn’t cause shareholders many sleepless nights over share-price volatility, making it a candidate for set-and-forget ISA investors. Though it hasn’t risen at a pace anywhere near the FTSE 100, it has slowly churned along and thrown off a lot of cash in the form of dividends.
In 2012 alone, GlaxoSmithKline plc (ADR) (NYSE:GSK) returned 8.8 billion pounds to shareholders through share buybacks and dividends. It currently pays about a 5.1% yield, edging out the pharmaceutical average of 4.8% — and leaving bank savings account rates in the dust.
If you’re after a market-beating share, look elsewhere. But if you’re after a steady performer for your ISA — one that pays a nice quarterly dividend of about 17 pence per share as well — then GlaxoSmithKline plc (ADR) (NYSE:GSK) is one to consider.
Trait 2: Consistent and growing cash flows and revenue
Set-and-forget investors can be well served looking for recession-resistant companies for their ISAs.
Unilever N.V. (ADR) (NYSE:UN), a consumer staples giant with an incredibly steady business, fits the bill perfectly. In good times and bad, people need the products Unilever N.V. (ADR) (NYSE:UN) sells (think soap, dish detergent, margarine, and the list goes on).
Unilever N.V. (ADR) (NYSE:UN) has an established position here in the U.K. as well as a growing presence in emerging markets. With a diverse range of products being sold worldwide, it has a solid, tenured business that puts up consistent cash flows and pays a reliable and well-covered dividend yield (currently about 3.4%).
Trait 3: Competitive advantage, a.k.a. “moat”
When I think about a company with a strong competitive advantage, drinks maker Diageo plc (ADR) (NYSE:DEO) comes to mind.
This company owns a huge range of spirits brands and has a massive distribution network worldwide. It is hard for new entrants to the market to gain ground on — and chip market share away from — Diageo.
Though shares in Diageo have lagged the market, shareholders were, however, sheltered from any wild swings in the share price (there’s that peace of mind again) — and rewarded with a handsome dividend.
Trait 4: Dividends
A theme in the four shares I’ve laid out for set-and-forget ISA investors is that each pays a dividend.
Remember, a dividend paid to you is a beautiful thing as you get paid for simply owning the shares! Dividends can also help smooth out any emotional sweating you may do over share-price movement.
Supermarket chain Tesco Corporation (USA) (NASDAQ:TESO) has no trouble making headlines, but what you may have missed among the horsemeat jokes is a pretty exciting turnaround story.
CEO Philip Clark and his management team have been hard at work, strengthening Tesco’s business here in the U.K. while also grabbing more share in its international markets. After a tough start to 2012, Tesco has hit it stride and shareholders should be happy with the progress.
And for ISA investors seeking extra income in the form of dividends, Tesco’s track record is hard to beat. The company has raised its annual dividend payout for nearly 30 years in a row, offering income-focused investors a nice yield they can count on.
Pair that with Tesco’s foundation in the U.K. and growing business internationally, and this set-and-forget share seems worth a closer look for your ISA.
The article 4 Shares for Your ISA originally appeared on Fool.com.
Jill Ralph owns shares of GlaxoSmithKline, Unilever, and Tesco. The Motley Fool recommends and owns shares of Tesco. It also recommends GlaxoSmithKline and Unilever.
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