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Stock market crash: I’d buy the best high-dividend-yield UK shares in an ISA today

Peter Stephens
·3-min read

The stock market crash means there are a wide range of high-dividend-yield UK shares available to buy at the present time.

Certainly, they face challenging future outlooks in many cases. Difficult operating conditions and a weak economic outlook could put their financial performances under pressure.

However, their high income returns suggest they offer wide margins of safety. They could deliver impressive capital returns in a low interest rate environment alongside their attractive income prospects.

Rising demand for high-dividend-yield UK shares

The stock market crash may have reduced demand among investors for high-dividend-yield UK shares. For example, some investors may view the uncertain economic and political outlook as being the right time to purchase less risky assets.

However, low interest rates mean demand for income stocks is likely to rise over the coming years. The returns available on assets such as cash and bonds are likely to remain significantly below income opportunities available among UK shares. Meanwhile, the accessibility of FTSE 100 and FTSE 250 shares, in terms of costs and diversification opportunities, makes them more appealing than other assets, such as buy-to-let property.

Rising demand for high-dividend-yield UK shares could mean their prices rise. Therefore, holders may be able to benefit from impressive capital returns alongside their attractive yield opportunities.

Improving dividend prospects

The outlook for high-dividend-yield UK shares may be relatively challenging at the present time. However, over the long run, they’re likely to experience stronger operating conditions that may enable them to raise dividends at an above-inflation pace.

The aftermath of previous stock market declines have included a phase of slow dividend growth as companies respond to fast-paced change within their respective industries. However, this has always given way to growing profitability that makes paying a higher dividend much easier for companies in a range of sectors.

Growing shareholder payouts could make high-dividend-yield UK shares more attractive to a wider range of investors. A rising dividend suggests a company has a solid financial position, as well as confidence in its growth prospects. This can encourage buying among investors that produces a higher total return.

UK shares past performance

High-dividend-yield UK shares have contributed a large proportion of the stock market’s previous total returns. For example, the FTSE 100’s capital return has been relatively disappointing in the last couple of decades.

However, since its inception in 1984, the index has produced a total annual return of around 8%. Much of this is due to the reinvestment of dividends.

Therefore, investors who are seeking to obtain a high total return from their ISA portfolio may wish to focus their attention on income shares.

They could offer much more than just a worthwhile passive income as the world economy and investor sentiment improve following the stock market crash.

The post Stock market crash: I’d buy the best high-dividend-yield UK shares in an ISA today appeared first on The Motley Fool UK.

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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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