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Forget NS&I Premium Bonds and Income Bonds. I’d buy these 2 high-yield UK dividend shares

Peter Stephens
·3-min read
Various denominations of notes in a pile
Various denominations of notes in a pile

The stock market crash may mean that investors like me avoid UK dividend shares in favour of less risky assets. However, low interest rates mean that products such as NS&I Premium Bonds and Income Bonds offer extremely low returns.

As such, now could be the right time to buy and hold a diverse range of FTSE 100 income shares for the long term. In many cases they offer high yields that are significantly greater than those available among other mainstream assets.

With that in mind, here are two British shares that appear to offer attractive passive income prospects. They could improve an investor’s income returns in the long run.

A resilient stock relative to other UK dividend shares

Utility stocks such as United Utilities (LSE: UU) have historically been popular UK dividend shares. They offer relatively robust performance that is likely to be less impacted by the economic outlook. This may provide a more resilient passive income over the long run.

In fact, the company’s defensive characteristics could increase its appeal at the present time. The UK economic outlook is relatively tough, and many FTSE 100 and FTSE 250 companies have recently reduced their shareholder payouts.

Certainly, United Utilities is reviewing its dividend policy as a new regulatory era begins. However, its dividend yield of 4.8% and the prospect of inflation-beating growth in shareholder payouts could mean that it delivers a solid income return in the coming years.

As such, I think it could offer appeal within a diverse portfolio of UK dividend shares. Other British shares may have higher yields, but utility stocks may equate to lower risk and a higher chance of dividends being paid in an uncertain economic period, I feel.

Improving prospects after the stock market crash

BAE (LSE: BA) is another FTSE 100 stock that I believe could offer appeal relative to other UK dividend shares. The aerospace and defence company has restarted its dividend payouts after a pause earlier this year in response to the uncertain economic outlook.

In the current year, the company is forecast to offer a relatively high yield of 5.6%. Next year, its bottom line is expected to rise by 15%. This suggests that it may have the capacity to increase dividends at a faster pace than inflation.

It also suggests that the company’s shares offer good value for money at the present time. They trade on a price-to-earnings (P/E) ratio of around 10. This indicates that they offer a wide margin of safety relative to other UK dividend shares.

Certainly, other assets such as NS&I Premium Bonds and Income Bonds offer less risk than stocks such as BAE. However, the company’s growth strategy, market position and recent updates suggest that it offers passive income potential over the long run within a diverse portfolio of British stocks.

The post Forget NS&I Premium Bonds and Income Bonds. I’d buy these 2 high-yield UK dividend shares appeared first on The Motley Fool UK.

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Peter Stephens owns shares of BAE Systems. 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 2020