Cheap FTSE 100 shares: a 6%+ UK dividend share I’d buy for my Stocks and Shares ISA

BIG dividends, huge profits growth, low valuations! Royston Wild explains why he’d buy this UK share from the FTSE 100 for his Stocks and Share ISA.

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Largely speaking, 2020 proved a disaster for dividend investing as Covid-19 crushed balance sheets and upended earnings growth. The number of UK shares that cut, suspended, or scrapped shareholder payouts ran into many hundreds.

Many investment gurus expect things to remain tough for income chasers during the first few months of 2021. But they reckon things will start to pick up in the latter half of the year as the economic recovery clicks through the gears. I think now’s a great time to buy UK shares in expectation of big near-term dividends. But investors need to remain careful before splashing the cash as the Covid-19 crisis rolls on.

Telecoms titan Vodafone Group (LSE: VOD) is on course to pay big dividends in the short-to-medium term whatever happens to the global economy. Indeed, City analysts are forecasting earnings growth of 34% and 30% in the financial years ending March 2021 and 2022 respectively. This is thanks to soaring global data demand and the ongoing 5G rollout.

FTSE 100 growth AND dividends

The rate at which data consumption is predicted to soar is quite staggering. The boffins at Ericsson, for example, reckon that mobile data traffic will rocket from around 51 exabytes (or EB) per month at the end of 2020 to 226 EB per month by 2026. The tech titan reckons that “improved device capabilities, an increase in data-intensive content, and more data throughput from subsequent generations of network technology” will drive this eye-popping improvement.

All this bodes well for dividends over at Vodafone. Indeed, City brokers reckon annual dividends will keep growing for the next few years at least. Consequently, for fiscal 2021 and 2022, the FTSE 100 giant carries huge yields of 6.6% and 6.8%.

Hand holding pound notes

Now Vodafone doesn’t have robust dividend cover over this period to assuage any investor nerves. In fact, the estimated shareholder payout for this year outstrips predicted earnings! I don’t think investors need to pull their hair out over this, however.

This UK share is a huge cash generator, giving it the balance sheet strength to keep paying enormous dividends. It is expected to generate free cash flow of €5bn this fiscal year. On top of this, the decision to spin off its towers business will boost Vodafone’s cash pile by an extra several billion euros.

An unmissable UK value share

The final reason I like Vodafone shares today is its low earnings multiples. Today the FTSE 100 business trades on a forward price-to-earnings growth (PEG) ratio of 0.6. Conventional wisdom suggests that a UK share trading below a prospective reading of 1 offers spectacular value.

Vodafone’s share price is 15% cheaper than it was at the beginning of 2020. And it’s more than four-tenths cheaper than it was just three years ago. With European service revenues on the cusp of recovering strongly, and data demand in its emerging markets rocketing, I think now’s a great time to buy this mega-cheap UK dividend stock for my Stocks and Shares ISA.

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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