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I’m investing £20,000 in my Stocks and Shares ISA to target long-term growth

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My Stocks and Shares ISA is a great way to invest £20,000 a year in a tax-efficient manner. These investments are immune from capital gain tax in the UK. With a view to investing for the long term, I’ve found the following businesses that could provide me with both income and growth.

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.

I tend to divide my investing into two strategies. The first aims at creating an income stream by holding the shares of high-dividend-yield stocks. Second, I try to find growth stocks that I think could take off at some future date.

Two dividend stocks for long-term income streams

The first company that I’ll choose for income is Phoenix Group Holdings. The firm – a life insurance business – has a dividend yield of 8.18% at the current share price of 591p. Last year, it made a dividend payment of 48.9p per share that was 3% higher than 2020.

It’s unclear how wider factors, like inflation or the war in Ukraine, will weigh on this business. But between 2020 and 2021, operating profit grew from £1.2bn to £1.23bn, while assets under management increased by £3bn to £310bn. 

Next, I’ll pick BHP, which has a dividend yield of 10.31% at the current share price of 2,071p. In 2021, it paid a dividend of $3.01 per share.

For the year ended June 2021, the company – a base metals and energy producer – reported bumper pre-tax profits of $24.6bn. This was an increase from $13.5bn in 2020.

There’s always the possibility that future pandemic variants could impact exploration and mining operations. Yet investment bank Jefferies has upgraded BHP to ‘buy’ based on the prospect of a “gradual recovery in Chinese demand”. It also increased the price target from 2,750p to 3,100p.

Rapid earnings for these growth stocks

Moving away from income and towards growth, I’ll be adding Gamma Communications. The shares are trading at 1,138p.

The company – a telecommunications firm in covering western Europe – saw its earnings per share (EPS) increase from 23.1p to 64.8p between 2017 and 2021. 

By my calculations, this results in a compound annual EPS growth rate of 22.9%. This is both strong and consistent, but not necessarily indicative of future performance.

While the business has been expanding throughout Europe through a number of acquisitions, pre-tax profit fell from £75m to £67.2m between 2020 and 2021. This is a trend I’d like to see reverse.

Finally, I also view Jubilee Metals as an attractive growth stock. With the shares trading at 14p, the metal processing and recovery firm has been benefiting from higher metal prices in recent months.

Between 2019 and 2021, EPS grew from 0.48p to 1.81p. This represents a compound annual EPS growth rate of 55.65%, which is highly appealing. What’s more, for the year ended June, between 2020 and 2021, revenue rose from £54.77m to £132.85m. 

However, earnings during this period fell by over 50%, year on year, from £29.33m to £14.91m. I hope that this can be addressed in the future.

I think investing in these four businesses in my Stocks and Shares ISA gives me a good possibility of achieving both growth and income. I’ll be adding them all soon.