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3 UK dividend shares I’d buy in a Stocks and Shares ISA now to make a passive income

Peter Stephens
·3-min read
Hand holding pound notes
Hand holding pound notes

Buying UK dividend shares in a Stocks and Shares ISA could be a sound means of obtaining a worthwhile passive income in 2021. It is possible to buy high-yielding shares that offer the potential for a rising income over the coming years.

With that in mind, here are three income shares that could offer investment appeal today. Their mix of resilient financial performances, high yields and dividend growth prospects could provide a worthwhile income return during what may prove to be a challenging year for the UK economy.

Making a passive income with UK dividend shares

British American Tobacco’s 8% dividend yield is one of the highest income returns available in the FTSE 100. As well as its generous passive income, the stock is a relatively resilient performer that has raised dividend payouts at a brisk pace for many years. Although cigarette volumes are falling, its plans to reduce leverage and invest in next-generation products could lead to rising profitability and a growing dividend.

SSE’s dividend yield of around 5% is not among the highest available from UK shares at the present time. However, it could prove to be a robust means of generating an income as the company’s operations are less likely to be negatively impacted by a tough future for the UK economy. It also plans to raise dividends by at least as much as inflation over the next few years. This could become an increasingly attractive prospect if inflation rises in response to a loose monetary policy.

Vodafone has also shown resilience in the current economic crisis. Its revenue has declined only modestly in recent quarters, which should mean it is able to maintain its dividend and current level of passive income. The stock currently yields over 6%. Its plans to embrace a digital future and the partnerships it has entered into in various markets could provide scope for a rising dividend.

Limiting risks when investing in dividend shares

Of course, any of the above three companies, as well as all others, could experience difficult operating conditions. This may limit their capacity to pay dividends, which could harm an investor’s passive income prospects. This risk is perhaps more acute than it has been for many years due to the uncertain economic outlook. It could negatively impact on the performance of a wide range of companies, and limit their dividend growth capabilities over the coming years.

Therefore, it is crucial to diversify among a large range of companies, sectors and geographies when seeking to make an income from UK shares. Doing so reduces an investor’s reliance on one or more companies, industries and regions to provide dividends. It also means that an income stream is likely to be less prone to ups and downs, which could make budgeting decisions easier in the current climate.

The post 3 UK dividend shares I’d buy in a Stocks and Shares ISA now to make a passive income appeared first on The Motley Fool UK.

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Peter Stephens owns shares of British American Tobacco, SSE, and Vodafone. 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.

Motley Fool UK 2021