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The Stocks and Shares ISA remains one of the best tools in a UK investor’s arsenal. Tax-free gains? Dividend income with no HMRC knock at the door? Count me in.
With a generous £20,000 annual allowance, there’s plenty of room to build a long-term portfolio – but only if the right shares go in. That means paying close attention to valuations, dividends and recovery potential.
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.
The FTSE 100 recently hit record highs, and while that’s good news for our portfolios, it also means bargains are harder to find. Overpaying for a stock at its peak can quickly undo months (or years) of passive income gains.
With that in mind, here are two quality dividend shares I think could be worth considering for an ISA in the second half of 2025.
Taylor Wimpey
Taylor Wimpey (LSE: TW.) hasn’t exactly had the best year. The share price is down 17.8% in 2025, but that could be an opportunity in disguise.
Let’s talk numbers. The forward price-to-earnings (P/E) ratio is just 12, cheaper than peers Persimmon and Barratt. Its price-to-book (P/B) and price-to-sales (P/S) ratios are 0.86 and 1.02 respectively — both signs that the stock isn’t overpriced.
And here’s the real cherry on top: a dividend yield of 9.3%. That’s massive. It’s not perfectly covered by earnings, which is a slight concern, but the balance sheet looks healthy with low debt and strong cash flow.
Analysts reckon the share price could bounce back 35% in the next 12 months, driven by hopes of interest rate cuts and a stabilising housing market.
The big risk? If inflation lingers or rate cuts stall, housing demand could slide, taking Taylor Wimpey’s profits and dividends with it.
Mondi
For investors after something outside the housing sector, Mondi (LSE: MNDI) might be worth a look. The packaging and paper group has been hit hard recently and Its share price has dropped 23.8% over the past year.
But under the bonnet, it’s not all doom and gloom.
Revenue’s actually up 3.3% year on year, and while the operating margin’s a modest 7.6%, earnings are expected to climb. That’s backed up by a forward P/E of just 12.7, compared to a trailing figure of 30. Analysts are optimistic too, with a 29.7% price increase forecast over the next year.
The dividend yield stands at 5.8%, and Mondi boasts an 18-year streak of uninterrupted payments. That’s exactly the kind of consistency ISA investors should love.
But there are risks. The company’s highly sensitive to commodity price fluctuations, which can eat into margins. It also operates in a capital-intensive industry, which means high fixed costs — not ideal during downturns.
Final thoughts
When building a Stocks and Shares ISA for passive income, it’s crucial to look beyond just yield. If a stock’s price falls faster than it pays out, it defeats the purpose.
That’s why undervalued, high-yield shares like Taylor Wimpey and Mondi — with real recovery potential — are worth considering. Even in a market brushing all-time highs, there are still diamonds in the rough.
