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2 cheap dividend-paying UK shares I’d buy in an ISA now for the stock market rally

Peter Stephens
·3-min read

The recent stock market rally means many dividend-paying UK shares have made gains of late. However, it’s still possible to invest money in cheap FTSE 100 and FTSE 250 shares for the long run.

The current stock market rally may or may not last over a sustained period. However, over the long run, a diverse ISA portfolio of UK stocks could deliver impressive total returns.

With that in mind, here are two stocks that could deliver attractive performances in the coming years after experiencing gains in recent weeks.

A buying opportunity among cheap dividend-paying UK shares?

Despite a 10% rise in the past two weeks, the Morrisons (LSE: MRW) share price appears to offer good value for money, relative to other cheap UK shares. It trades on a price-to-earnings (P/E) ratio of around 12.5, which suggests it offers a wide margin of safety compared to the wider FTSE 100.

The supermarket giant is forecast to return to positive earnings growth next year. Its bottom line is expected to rise by around 5%. In the long run, it’s targeting investment in areas such as online delivery slots. It’s also diversifying its range of retail locations through a wholesale supply arrangement. Both strategies could mean it’s in a good position to produce further growth.

Morrisons currently has a dividend yield of 4.2%. That’s slightly below the FTSE 100’s 4.7% yield. However, the company’s resilient business model and the growth opportunities is has in online trading could mean it has a more upbeat passive income outlook than other UK shares. As such, it may become more popular in an era of low interest rates.

A FTSE 100 outperformer with further growth potential?

The BHP (LSE: BHP) share price has consistently outperformed many other UK shares this year. For example, it’s currently down 8% in 2020, while the FTSE 100 has fallen by 16% over the same time period.

The diversified mining company’s recent updates have highlighted its operational resilience despite an uncertain working environment. It also has a diverse asset base that may prove to be more robust than those of its industry peers. Meanwhile, it has a solid financial position relative to many of its rivals. This may mean it can successfully overcome further challenges for the world economy. Those that may lead to depressed demand for a range of commodities in the coming months.

BHP may lack the stability of other dividend-paying UK shares, in terms of its financial prospects which are very reliant on the world economy’s performance. However, its dividend yield currently stands at around 7%. This suggests it offers good value for money. That’s even with an uncertain future accounted for.

And, with dividends being covered 1.5 times by net profit, there may be scope for continued generous shareholder payouts over the long run.

The post 2 cheap dividend-paying UK shares I’d buy in an ISA now for the stock market rally appeared first on The Motley Fool UK.

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Peter Stephens owns shares of BHP Group and Morrisons. 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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