With just nine days to go before the 2017/18 tax year deadline for ISA contributions, there’s never been a better time to consider which stocks would fit best in your stocks and shares ISA. And while they’re a rare breed, stocks that offer both good growth prospects and high dividends are well worth seeking out to maximise the tax-avoiding benefits of ISAs.
Another record year in the books
One stock that fits the bill in my eyes is sub-prime auto lender S&U (LSE: SUS). Full-year results released this morning showed the group notched up increased profits for the 18th year in a row while dividend payouts increased 15% to 105p, which equals a yield of 4.4% at today’s share price.
As this substantial increase in shareholder returns suggests, the last year was another quietly great one for S&U. Pre-tax profits rose a full 20% to £30.2m while revenue increased 32% to £79.8m as management invested significant capital into bringing on board new customers, which should begin to flow through the business as profits in the coming quarters.
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Customer numbers for the year rose 26% as the group’s brand recognition rose and contributed to a very significant increase in applications. This allowed for a substantial uplift in new policies written while still maintaining the acceptance rate at a low 3%, showing the conservative outlook the management team, led by the twin grandsons of the founder, takes towards growing the business.
This slow but steady progress is necessary in the cyclical field of lending, particularly the sub-prime type. And with a stable and growing used car market boosting demand for its services now and a history of growing profitably even through cyclical downturns, I reckon S&U could be a great growth and income pick for long-term investors.
Near-monopoly profits on the Isle of Man
But if S&U is a bit too risky for you and you prefer higher income potential from your holding, I think Manx Telecom (LSE: MANX) could fit the bill. As its name says, this £200m market cap firm is the major provider of fixed line, mobile and broadband solutions for businesses and customers on the Isle of Man.
This market-leading position in a market that is too small to attract the attention of larger telecoms firms produces significant pricing power for the firm and cash returns for its investors.
In fiscal year 2017, revenues of £78.5m produced free cash flow of £20m, of which £12.6m was paid out to shareholders in dividends that currently yield 6.2%. While revenue fell from £80.8m in the year prior and EBITDA also dropped from £27.7m to £271.m year-on-year, the company is in good shape and actually offers decent if unspectacular future growth prospects.
Most of this growth will come from the global solutions segment, which among other things sells UK SIM cards to international travellers, particularly Chinese ones, before they ever even reach Heathrow. Last year revenue from this division rose 6.2% and with positive momentum expected in the data centres business in 2018 following the loss of a single big customer last year, Manx should see revenue returning to positive growth this year.
Although the business won’t be growing by leaps and bounds, its dominant position in its core market, growth opportunities and large dividend, make it one stock conservative, long-term income investors may come to love in their retirement portfolio.
