ISA alert: could these dividend-paying UK shares make me rich during the economic downturn?

These UK shares boast big dividend yields over the short-to-medium term. But should I buy them both for my Stocks and Shares ISA?

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These are tough times for UK share investors to navigate. On the plus side, it looks as if uncertainty over who will be the next US President has been finally quashed. But unfortunately, Covid-19 infection rates continue to rise and influence investor sentiment.

Worrying developments in Denmark suggest that a dark new chapter in the pandemic could be around the corner too. Hundreds of cases of mutated Covid-19 have been detected that are thought to emanate from the country’s mink farms. Hopes of a clear upturn in the global economy following the horrors of early 2020 are clearly on shaky ground.

That said, I haven’t stopped buying UK shares for my Stocks and Shares ISA. There are still plenty of big-dividend-paying shares out there that could help me get rich despite the threat of a long social and economic crisis.

The UK national flag in front of Canary Wharf skyscrapers where professionals trade shares for a living.

An ISA investment trap?

Tobacco stocks like British American Tobacco (LSE: BATS) are traditional havens for dividend hunters in troubled times. The addictive nature of their products meant that they could be relied upon to be strong profits generators regardless of the broader state of consumer spending power. This quality still gives it the edge over many other UK shares.

But it doesn’t mean that I’m tempted to buy the FTSE 100 stock today, despite its mighty 8.5% forward dividend yield. Around 60m smokers stubbed out for the last time between 2000 and 2018, according to the World Health Organisation. And the rate of quitters is likely to accelerate as global lawmakers step up their fight against tobacco with public smoking bans, marketing restrictions and so forth. The same regulatory push casts a shadow over the long-term profits outlook for British American Tobacco’s vaping products too.

A better UK share I’d buy

Hiscox Limited (LSE: HSX) is a traditional safe-haven stock I’d much rather invest in today. Spending on general insurance is also one of those things that remains stable during economic upturns and downturns. This particular UK share is one of the insurance industry’s most trusted brands too, making it an ideal pick for these uncertain times. The Covid-19 crisis has caused demand for goods and services with long and proud histories to spike among frightened citizens.

The FTSE 250 insurer’s decision to suspend dividends in April as infection rates ballooned terminates its record of annual payout increases. Still, Hiscox announced plans to pay a dividend later in the year during its latest reassuring update. And based on current City projections, this UK share boasts an inflation-mashing 2.9% dividend yield. Expectations that the annual dividend will soar above 2019 levels next year drive the yield to a much meatier 4.5%.

Finally, Hiscox trades on an undemanding forward price-to-earnings (P/E) ratio of 13 times for 2021. It’s not as good as British American Tobacco’s readout of 7 times for next year. But it’s still quite low when you consider this UK’s brilliant defensive qualities. Besides, the insurer is in much better shape to deliver terrific long-term gains than the battered tobacco titan.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

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