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The stocks and Shares ISA contribution limit is £20k a year. That's easy enough to build wealth over time, whether through growth stocks, index funds, or dividend stocks that generate a tax-free second income.
Below are a couple of FTSE 100 income shares that an investor with £9,000 could consider for 2025.
Please note that tax treatment depends on each client's individual circumstances and may be subject to change in the future. The content of this article is provided for informational purposes only. It is not intended to be, nor does it constitute, any type of tax advice. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.
Global banking giant
First is HSBC (LSE: HSBA). The banking goliath is on the rise, with the share price at its highest point since early 2018.
At 750p, it rose by around 21% last year, which outperforms Lloyd's (16%) but it is far behind Barclays and NatWest (both increased by about 88%).
Despite this, HSBC's forward dividend yield for 2025 remains very attractive, at 6.8%. That's almost double the index average.
A key attraction here for me (and the reason I own the shares) is that the bank spans both Western and East Asian markets. The latter offers potentially greater long-term growth prospects.
Admittedly, things could get a little difficult with Donald Trump's proposed tariffs and the possibility of trade wars. Economic crises and geopolitical tensions in key markets could negatively affect the bank's profitability.
Still, Asia remains the fastest growing region globally. According to Knight Frank, the number of ultra-high net worth people will grow by 38% between 2023 and 2028.
HSBC is chasing this wealth market, while continuing to buy back a bunch of its own shares while they are cheap.
UK insurance giant
Another dividend stock that I think is worthy of consideration is Aviva (LSE: AV.) Shares in the insurance firm have risen 13% over the past year but remain cheap at less than 10 times expected 2025 earnings.
This translates into a market-destroying 7.8% forward yield. I find it very attractive for an established blue-chip company that has grown its customer base from 1.2 million to 19.6 million in the last four years.
Speaking of four years ago, Aviva cut its dividend back then. And the payout is lower today than in 2018 (39.5 pence per share), indicating the company is not a dividend aristocrat.
However, Aviva has since rationalized its operations to focus on the core markets of the UK, Ireland and Canada. And it has been progressively increasing the dividend, with a trajectory that seems promising.
| Year | 2020 | 2021 | 2022 | 2023 | 2024 (forecast) | 2025 (forecast) |
|---|---|---|---|---|---|---|
| Dividend per share | 27.6p | 29p | 31p | 33.4p | 35.3p | 38p |
In recent days, the company reached an agreement to acquire Direct Line (owner of Churchill and Green Flag) for £3.6bn. If approved, this acquisition would give Aviva more than 20% of the UK motor insurance market, as well as a good chunk of the home sector.
Of course, this could pose significant integration challenges, and the anticipated synergies may not materialize as planned. There may be some bumps in the road.
Overall though, I think a cheap valuation, good business momentum and high performance make Aviva shares worth a look.
Second income potential
Dividends are not guaranteed, no matter how established a company is. However, if followed through, the passive income opportunity looks very attractive.
Nine grand invested equally between the two stocks gives an average dividend yield of 7.3%. This would offer the investor the opportunity to earn around £657 in annual passive income.
