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3 UK shares with 5%+ dividend yields I’d buy in an ISA for 2021

Peter Stephens
·3-min read

Making a passive income with UK shares may be a sound move in 2021. After all, the income opportunities available elsewhere are rather unattractive. Low interest rates mean that cash and bonds provide scant reward for their holders. The high prices of property means that buy-to-let yields may also be relatively low.

With that in mind, I’m looking at three UK stocks that offer dividend yields of 5% and above. They could provide a worthwhile passive income in 2021, as well as the prospect of capital growth as dividend shares become more popular in a low interest rate environment.

A resilient income among UK shares

National Grid could provide a relatively robust passive income compared to many UK shares. The company has a low correlation with the economy’s performance, in terms of it being less impacted by a slowdown in GDP growth. This could mean that its dividends are more secure than those of other FTSE 100 shares.

Its 5.7% dividend yield is relatively high compared to its long-term average. This suggests that it could offer good value for money. It may also become more popular among investors should a UK lockdown cause a shift towards greater risk aversion in the coming months.

A robust performance and a high dividend yield

Vodafone could become more popular among UK shares for similar reasons. Its business model is likely to be more impacted by an economic slowdown than utility stocks. However, its updates throughout 2020 were generally resilient, with its sales falling modestly despite disruption in some key markets.

With a dividend yield of 6.5%, Vodafone is among the highest-yielding shares in the FTSE 100. It has reduced dividends over the past few years in response to operational challenges. However, it appears progress is being made in this regard, and could lead to a stronger financial performance in the long run, providing scope for dividend growth.

A high yield with above-average volatility

BHP’s future performance is likely to be volatile relative to many UK shares. The mining company’s profitability is closely linked to the outlook for the world economy, since it relies on commodity prices that are affected demand. As such, its share price performance could be turbulent when compared to many large-cap shares in the FTSE 100.

However, it has a 6.1% dividend yield at present. This suggests that its uncertain future may have been factored in by investors. Similarly, its low cost base, diverse range of assets, and strong balance sheet could protect it from potential challenges in 2021.

I’m going to keep it in mind. Within a diverse ISA portfolio, BHP could offer a sound long-term income investing opportunity. It may also be able to post a brisk pace of dividend growth as the world economy recovers in the coming years.

The post 3 UK shares with 5%+ dividend yields I’d buy in an ISA for 2021 appeared first on The Motley Fool UK.

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Peter Stephens has no position in any of the shares mentioned. 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