With the Stocks and Shares ISA 5 April deadline fast approaching, I have been looking for income stocks to buy for my portfolio. Three companies stand out to me right now as being undervalued income stars.
Mining champion
The first company on my list is mining group BHP (LSE: BHP). This firm recently announced a bumper set of results. Buoyed by rising commodity prices, the corporation announced a 61% increase in pre-tax profit for the six months to the end of December.
Thanks to this growth, management has hiked the firm’s dividend to investors. After the recent increase, the shares support a dividend yield of 11.5%.
Unfortunately, commodity prices are highly volatile, so BHP’s bumper profitability may not last forever. This is a significant risk I will be keeping in mind as we advance. If profits slump, the firm may have to slash its payout.
Still, it looks to me as if high commodity prices are here to stay, at least for the next year or so. As such, I would buy BHP for my Stocks and Shares ISA today for its income credentials.
Stocks and Shares ISA property buy
As well as BHP, I would also buy Big Yellow (LSE: BYG). The self-storage group might not offer a double-digit yield, but it does have a lot of growth potential, in my view.
Over the past 10 years, the firm has built a portfolio of self-storage facilities throughout the UK. And it is still creating new facilities. Demand for new storage facilities is running high, and Big Yellow is looking to capitalise on this potential.
The one risk of this approach is that the company could end up overexpanding. If it invests too much and grows too far, too fast, shareholders could have to end up footing the bill. The firm might have to ask shareholders for cash to strengthen its balance sheet.
Despite this risk, I believe the stock has a lot of income potential. At the time of writing, the shares offer a dividend yield of 2.9%.
However, this payout could grow if the firm’s earnings expand as it builds out the portfolio. There is also the potential for capital growth if the business’s growth plans yield favourable results.
Leading income stock
Financial services group Abrdn (LSE: ABDN) would also earn a place in my Stocks and Shares ISA portfolio. With a yield of 6.3% at the time of writing, the stock offers one of the highest yields in the FTSE 350. I am also attracted to the business as it has lots of growth potential over the next few years.
The company is currently building out its investor offering by acquiring smaller wealth managers, and by buying online stockbroker Interactive Investor, Abrdn is trying to reach a new audience.
This strategy could backfire. If it does, the firm could end up paying a lot of money for nothing. It may have to cut its dividend if the company ends up overexpanding. I will be keeping an eye on this risk factor going forward.
Still, considering the group’s position in the market, reputation, and scope for growth during the next few years, I believe it deserves a place in my Stocks and Shares ISA.
Rupert Hargreaves 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.
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