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Top stocks for an ISA! I’d buy these 3 solid UK dividend shares to survive the economic downturn

Harvey Jones
·3-min read
A person holding onto a fan of twenty pound notes
A person holding onto a fan of twenty pound notes

While many UK dividend shares have suspended payouts due to the Covid-19 crash, others continue to pay generous income. Better still, for investors buying the latter inside a Stocks and Shares ISA, income is free of tax for life.

Current economic uncertainty looks set to drag on, and could be worsened by US political dramas. I think these three FTSE 100 dividend shares will help build my wealth, whatever happens in the turbulent months ahead.

I’d buy top FTSE 100 utility stock and dividend hero National Grid (LSE: NG) at any time. This is the ideal bedrock stock for a balanced portfolio. National Grid manages the wires and pipes that businesses and homes rely on for power, both in the UK and north-east US. Its earnings are regulated, so while they will never shoot the lights out, they should provide a reliable flow of cash to fund the dividend.

I’d buy this top UK dividend share

National Grid currently yields 5.16%, which is more than 50 times current base rate. I think it offers a great way to beat the rotten returns on cash, without taking on too much risk. Don’t expect too much share price growth though. The National Grid share price trades at roughly the same level as five years ago. On the other hand, you shouldn’t expect too much downside either. It isn’t cheap, at 17 times earnings, but looks a good defensive UK dividend share for troubled times.

You can get dividends of 8% or 9% on the FTSE 100 today, but that’s not what I’m after here. I want something solid. So I make no apology in highlighting another defensive utility play, water and wastewater specialist Pennon Group (LSE: PNN).

Pennon’s full-year revenues fell 6% as it completed the sale of its Viridor waste management business, and consumption dropped at its South West Water operations. The estimated £10m dip looks manageable and the business remains “resilient”.

Solid income from the FTSE 100

The big concern is that water companies may struggle to pay their bills due to the economic downturn, although payment collections have been robust so far. The £4.2bn proceeds from selling Viridor have been used to boost the balance sheet by clearing £900m of debt and top up its pension schemes. Pennon was planning to increase its dividend by at least 4% over inflation to 2025. It’s now cut that to 2%, but it remains a compelling UK dividend share, currently yielding 4.4%.

You might think fund managers should be a risky investment in the wake of a stock market crash, but Schroders has recovered strongly in recent months. It posted an increase in Q3 assets under management last month, lifting the total to £66.8bn.

Right now, you can buy Schroders at a bargain price of 13.52 times earnings. For that, you get an attractive yield of 4.4%. While you may see some share price volatility, depending on how the downturn pans out, this UK dividend share looks a strong buy and hold for me.

The post Top stocks for an ISA! I’d buy these 3 solid UK dividend shares to survive the economic downturn appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Pennon Group. 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