UK share markets have rocketed in recent weeks as hopes of a Covid-19 vaccine have risen. The FTSE 100 and FTSE 250 both touched multi-month highs as confidence rushed back into equity markets. Good news for investor sentiment, which has been under pressure for most of 2020. But I’m not getting too excited.
There are several reasons why the British economy, and by extension some UK shares, might struggle in 2021. First off is the possibility that Covid-19 infection rates will keep ballooning before a vaccine become available. Another is that any formula to battle the coronavirus might not be as effective as first hoped. Finally, the growing threat of a no-deal Brexit also looms large over the outlook for next year.
Looking on the bright side
Worrying comments this week from Chancellor of the Exchequer underlined the scale of the challenges in 2021 and beyond. During his Spending Review, Rishi Sunak said that “the economic emergency has only just begun” and that “the economic damage [of Covid-19] is likely to be lasting.”
UK share investors clearly need to remain careful. It doesn’t mean that I’ll stop buying British equities for my Stocks and Shares ISA though. There are still plenty of London-quoted stocks that should deliver brilliant near-term returns, despite the tough economic landscape. And many of these can be picked up at bargain-basement prices following the early 2020 stock market crash.
4 top UK shares for my ISA
Here are four top UK shares I’d buy for 2021. I think they should continue paying huge dividends, whatever happens to the British economy:
- Aviva’s 7% dividend yields for 2021 make the FTSE 100 insurer too cheap to miss in my book. This UK share has a long record of paying big dividends to its shareholders, and the sale of its Aviva Vita Italian joint venture this week will provide extra firepower for it to continue down this path.
- Vodafone Group’s 5% dividend yield for this fiscal year (to March 2021) might not be as impressive. But it still makes mincemeat of the broader FTSE 100 forward average of around 3.5%. The telecoms titan is a cash-making machine and this, along with its defensive operations, should allow it to keep paying big dividends, despite macroeconomic uncertainty.
- I’d also bank on Sabre Insurance Group remaining a top income play for 2021. The defensive nature of the car insurance provider’s operations should give it the confidence to keep paying large dividends, despite the poor UK economic outlook. This particular UK share yields a gigantic 6% for 2021.
- Drax Group’s another stock from the FTSE 250 which, thanks to its 6% dividend yield for 2021, is a terrific buy, I feel. The power plant operator’s services will remain in high demand, whatever broader economic conditions are like. And this month the UK share refinanced its revolving credit facility to give it extra financial firepower for next year.
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.