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Dividends paid into a Stocks and Shares ISA can be enjoyed free of tax. This important concession makes them particularly attractive to those who want to own a portfolio of dividend shares.
With a current (12 September) yield of 9.49% there’s one FTSE 250 stock that, on paper at least, could be an ideal candidate to consider for inclusion in an ISA. But could it be a value trap? Let’s see.
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Delving deeper
In my opinion, a stock that yields over three times that of the UK stock market as a whole deserves a closer look. So let me introduce you to Henderson Far East Income (LSE:HFEL), an investment trust which has stakes in businesses with a significant exposure to the Asia Pacific region.
The trust listed in December 2006. And every year since, it’s raised its annual payout. Even during the pandemic, it managed to increase its dividend. For the year ended 31 August 2025 (FY25), it paid 24.9p a share. This is just over three times the figure for FY07.
A further increase looks likely for FY26, but based on a payout of 24.9p, it means someone buying 3,809 shares today for £9,998.63, could earn an annual passive income of £948.44.
Buyer beware?
However, such a healthy return could be a warning of trouble ahead. Indeed, over the past six financial years, the increase in its payout has averaged a modest 1.78%. At the same time, the group’s share price has fallen by around 15%.
But even if its share price was close to where it was at the end of FY19, the stock would still be yielding 6.53%, over twice that of the FTSE 250. This tells me that it has all the credentials to be a top income stock.
Even so, there’s no point buying any of the trust’s shares if they’re going to keep dropping in value. However, the position’s not as bad as it might first appear.
Yes, the stock remains below its pre-pandemic level. But it’s still up a third on where it was at the end of October 2023. Investor confidence appears to be returning as Asia’s economies recover from the impact of Covid.
Right place, right time?
However, the evidence is mixed as to whether the stocks of these countries offer good value. Fidelity International uses the cyclically adjusted price-to-earnings (CAPE) ratio — which compares 10-year earnings (adjusted for inflation) with a country’s stock market valuation — to assess value for money.
Its analysis shows that stocks in Indonesia (9.3) and China (13.7) are cheap by global standards. But those in Japan (28.3), South Korea (33.9), and Taiwan (49.5) are more expensive. By comparison, the UK’s figure is 17.9.
With its sole focus on one continent, there’s nowhere to hide should there be an economic downturn in the region.
However, the trust has positions in many of Asia’s most famous companies, including Samsung Electronics (its largest holding) and Taiwan Semiconductor Manufacturing. These have global reach.
And with 69 shareholdings, it’s possible to spread investment risk over a large number of companies — and countries — by holding just one stock.
Personally, I think Henderson Far East Income has great potential. In fact, I believe it’s one of many high-yielding UK stocks that are worth considering.
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James Beard does not hold positions in any of the companies mentioned.
