Dividends! Should I buy these big-yielding UK shares from the FTSE 100 today?

These FTSE 100 shares yield an enormous 5.6% and 8.7%! But would I add these UK shares to my ISA because of their colossal dividend projections?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

I love a good UK share with big dividend yields. Who doesn’t? But with the Covid-19 pandemic rolling on, taking large yields at face value is dangerous business.

Dividends from UK shares collapsed by almost half in 2020 as the pandemic hit corporate profits and balance sheets. And shareholder payouts are likely to keep falling in the near term at least as the enduring public health emergency keeps the world locked down.

I won’t stop searching for big-yielding British companies for my Stocks and Shares ISA, however. There are plenty of quality UK shares that should keep paying big dividends regardless of the Covid-19 crisis. Here I explain whether I think the following FTSE 100 stocks are brilliant buys for my portfolio or investment traps.

A high-risk UK share

There are plenty of oil market analysts out there who are predicting a steady rise in crude prices following 2020’s crash. They’re expecting demand to improve as the pandemic unwinds and the global economy gets back to normal.

Heck, the boffins at UBS have even been raising their forecasts in recent days despite “more severe” lockdowns than they had anticipated being imposed at the start of 2021. They now reckon the Brent benchmark will average $57 per barrel this year, up from $56 at present. The number crunchers upgraded their forecasts in 2022 and 2023, too, and reckon black gold will average $60 in both periods.

Does all of this make BP (LSE: BO) a solid buy today, then? I’m not so sure.  Even this UK share’s 5.6% forward dividend yield isn’t enough to attract me to buy. Any signs that Covid-19 lockdowns will persist long into 2021 could send Brent prices hurtling through the floor again, resulting in more dividend carnage at the FTSE 100 oilie.

Serious demand questions aren’t the only reason I’m concerned about BP’s dividends, however. Resilient oil supply means that crude inventories continue to build. Meanwhile, pressure from Russia for the OPEC+ group of countries to raise production keeps on growing, threatening to release extra waves of unwanted material onto the market.

I can’t deny that those dividends do look attractive, that BP has a strong track record of paying them and is working to reduce its reliance on oil. But it’s not for me at present.

Hand holding pound notes

8%+ dividend yields!

This uncertainty means I’d be happier to use any cash I’d spend on BP to buy shares in Persimmon (LSE: PSN) instead. And it’s not just because the yield at this UK share sits at an even higher 8.7% for 2021.

Don’t get me wrong. This FTSE 100 stock carries risks of its own. Firstly, the twin crises of Covid-19 and Brexit spell danger for new homes demand this year. Secondly, a growing shortage of construction materials threatens to hamper production rates at Persimmon and its peers in the near term and beyond.

That said, I think this UK share can still look ahead with optimism. I think favourable lending conditions mean that demand from first-time buyers should keep outstripping supply. Rocketing house prices during pandemic-hit 2020 support this view, I feel. There’s a strong possibility that this homes shortage will persist long into the future too. So I expect Persimmon to remain a generous dividend payer well beyond 2021. I’d buy for my portfolio.

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.

More on Investing Articles

Finger clicking a button marked 'Buy' on a keyboard
Investing Articles

Analysts have upgraded this FTSE 100 stock to Buy. What should investors do?

Associated British Foods shares have been uninspiring for some time. But is it finally time to consider buying the FTSE…

Read more »

Man changing battery on electric bicycle
Investing Articles

Prediction: in 12 months the sizzling National Grid share price could turn £10,000 into…

It's been another solid year for the National Grid share price and the dividend yield is decent too. So why…

Read more »

Businessman using pen drawing line for increasing arrow from 2024 to 2025
Investing Articles

Up 185% in 3 years, why does the market love this FTSE 250 stock

Over the past three years, this stock has vastly outperformed the FTSE 250. Dr James Fox takes a closer look…

Read more »

A handsome mature bald bearded black man in a sunglasses and a fashionable blue or teal costume with a tie is standing in front of a wall made of striped wooden timbers and fastening a suit button
Investing Articles

Looking for growth, dividends, or value? These 3 ETFs could be smart ideas to consider

Exchange-traded funds (ETFs) provide a way for investors to spread risk without sacrificing the possibility of huge long-term returns.

Read more »

Happy couple showing relief at news
Investing Articles

Is the Rolls-Royce share price fast becoming a joke?

The FTSE 100 engineering titan has done brilliantly in recent years. But our writer wonders whether the Rolls-Royce share price…

Read more »

Middle-aged white male courier delivering boxes to young black lady
Investing Articles

Is there a ‘best age’ to start buying shares?

Christopher Ruane weighs some possible pros and cons of waiting to start buying shares for the first time, versus starting…

Read more »

piggy bank, searching with binoculars
Investing Articles

Is it time to look again at the FTSE 250’s worst performers?

Our writer considers the prospects for two of the worst-performing shares on the FTSE 250, with falls of at least…

Read more »

A handsome mature bald bearded black man in a sunglasses and a fashionable blue or teal costume with a tie is standing in front of a wall made of striped wooden timbers and fastening a suit button
Investing For Beginners

Down over 40% in the past year, I think investors should consider these value shares

Jon Smith points out two value shares that have fallen heavily over the past year but are starting to look…

Read more »