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7%+ dividend yields! 3 cheap UK shares I’d buy for my ISA for 2021

Royston Wild
·3-min read
macro shot of computer monitor with FTSE 100 stock market data in trading application
macro shot of computer monitor with FTSE 100 stock market data in trading application

I don’t care about the uncertain earnings picture for many UK shares. It won’t stop me from investing in my ISA right now. The much-hoped-for economic recovery in 2021 might disappoint as the Covid-19 crisis rolls on. But there remain plenty of top stocks that should still deliver spectacular shareholder returns this year and beyond.

Here are several I’d happily buy for my own Stocks and Shares ISA today. They trade on rock-bottom earnings multiples at current prices. But these UK shares also offer investors like me the chance to grab some mighty dividends in 2021.

One of my favourite foodies

Devro is a perfect UK stock for 2021, I feel. It’s not just that profits at food and food ingredients producers like these remain stable regardless of broader economic conditions. The sausage casings maker has significant exposure to China where meat consumption levels continue to steadily climb.

All this is why City analysts reckon Devro’s annual earnings will rise 10% this year. It’s a reading that leaves the FTSE 250 firm trading on a low forward price-to-earnings (P/E) ratio of 10 times. Combined with a chubby 6.2% dividend yield, these readings make the sausage skin star a top value buy today, I believe.

Image of person checking their shares portfolio on mobile phone and computer
Image of person checking their shares portfolio on mobile phone and computer

Another safe UK share

I’m of the opinion that Direct Line Insurance Group’s another cut-price UK share worthy of serious attention. The car insurer trades on a P/E ratio of just 13 times for 2021. It sports a meaty 7.1% dividend yield as well.

Insurance demand doesn’t tend to vary much during economic upturns and downturns. Those that provide car insurance — a specialism of this particular FTSE 250 stock — tend to be even more resilient. Getting your motor insured is, of course, a legal requirement. As a result, City analysts reckon Direct Line’s earnings will jump 11% year-on-year in 2021.

A FTSE 100 giant

I also feel confident that BAE Systems (LSE: BA) will continue to enjoy lively custom in 2021 and beyond. The FTSE 100 defence giant has it fingers in many pies and is a leader in a great many tech fields. This makes it a critical supplier to the US and UK militaries, as well as armed forces further afield.

Some feared that the Covid-19 crisis could strike a blow to defence budgets in the short-to-medium term. The imminent passing of a $740bn arms spending plan by US lawmakers will put such fears firmly in the shade, however. BAE Systems has already been boosted by an agreement by the British government to spend £16.5bn on defence in November.

City analysts are reckoning that BAE Systems’ annual earnings will increase 12% in 2021. This leaves the UK share trading on a forward P/E multiple of 11 times. It leads to predictions of another dividend hike too and consequently a meaty 5% dividend yield. Like Devro and Direct Line, I’d happily buy this UK stock for 2021 and hold it until the end of the decade.

The post 7%+ dividend yields! 3 cheap UK shares I’d buy for my ISA for 2021 appeared first on The Motley Fool UK.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Devro. 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