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Worried about dividend cuts? I’d think these big-yielding UK shares are brilliant ISA buys

Royston Wild
·3-min read
The UK national flag in front of Canary Wharf skyscrapers where professionals trade shares for a living.
The UK national flag in front of Canary Wharf skyscrapers where professionals trade shares for a living.

2020 has been a year of misery for many UK share investors. As someone who invests for dividends, I’ve been disappointed by some of companies in my Stocks and Shares ISA which have axed, postponed, or reduced dividends in the wake of the Covid-19 crisis.

Evidence has emerged that things are getting better for dividend investors. But things could go south again as coronavirus cases spike and global economies take a fresh battering. It’s clear that those searching for big dividends from UK shares need to be extremely careful.

A FTSE 100 favourite

I haven’t stopped buying UK shares for my ISA. I don’t plan to either. Some diligent research will reveal top stocks that should remain big dividend payers in the near term at least. So I still expect to make big returns from my ISA. This is how I view the following big-yielding UK shares:

  • I think Severn Trent’s a brilliant buy for even the most nervous of investors. The FTSE 100 business isn’t immune to the challenging economic environment and a rise in bad debts is inevitable. But under regulatory rules, water suppliers like this can recover fallen revenues later down the line. In the meantime, cash generation from its essential operations remains strong enough to offset this problem and allow it to keep paying large dividends. And this UK share has huge undrawn facilities to call upon, if required. A 4% forward yield has put it on my radar.

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’m not tempted to invest in Royal Dutch Shell though, despite the FTSE 100 company’s 5.8% forward dividend yield. It’s not just the threat of a prolonged demand suppression that’s putting me off. It’s that rising supply promises to increase the amount of unwanted crude floating around. Production from Libya will likely double to 1m barrels per day in the next few weeks, following a recent ceasefire. Meanwhile, the number of oil rigs operating in the US continues to climb as well.

  • While Shell’s ability to pay big dividends is in increasing danger, the same can’t be said for CMC Markets. The trading giant’s thrived in 2020 as volatility on financials markets has ballooned. As a result, trading revenues in the six months to September doubled year over year. No wonder City analysts expect another meaty hike in the annual dividend for the current financial year, resulting in a 7.1% dividend yield. With the Covid-19 crisis escalating, and other issues like Brexit and trade wars rumbling on in the background, I’m tipping business at this UK share to remain upbeat.

More top UK shares to get rich with

CMC Markets and Severn Trent show UK share investors shouldn’t stop building their share portfolios despite the Covid-19 crisis. With the exception of Shell, the dividend stocks I describe should still deliver terrific near-term returns, despite the economic downturn. And there are plenty more UK shares like these I think could boost my chances of enjoying excellent income flows during the 2020s.

The post Worried about dividend cuts? I’d think these big-yielding UK shares are brilliant ISA buys 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 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