2020 has been a difficult year for dividend investors. Hundreds of UK shares have had to slash or stop shareholder payouts as profits have dived and balance sheets have taken a battering due to Covid-19.
Those seeking to enjoy handsome income flows despite the economic downturn need to be extremely careful. More dividend cuts could be coming down the line. Coronavirus infection rates are rising and lockdown barriers could be erected again.
Other issues that threaten dividends from UK shares include Brexit, trade tensions that flare up at a moment’s notice, and significant political upheaval in the US.
But enough of the bad news…
But It’s not all grim out there for dividend investors. There are plenty of UK shares out there that continue to offer chunky yields. A number of these are in great shape to keep growing annual payouts, despite the uncertain macroeconomic outlook.
These UK shares all offer dividend yields of 5%, or above, for the current fiscal year. I wouldn’t buy all of them for my own Stocks and Shares ISA however:
- Civitas Social Housing is one of those UK shares that’s recently hiked its dividend target. It’s a move that should come as no surprise and creates a hefty 5% forward yield. This FTSE 250 share provides housing for adults with specialist care needs, an essential service whatever broader economic conditions are like. And the company is investing heavily to keep its portfolio of 616 properties, and with it profits and dividends, growing.
- Yields at FTSE 100 colossus J Sainsbury are bigger, yet it’s not a share I’d buy today. Sure, its 5.3% dividend yield looks appealing. But I worry about this UK share’s ability to keep paying meaty dividends for a few reasons. The threat of fresh lockdowns and a poorly-executed Brexit process threaten to damage supply lines and create a huge spike in costs. Sainsbury’s also faces significant, profits-crushing competitive pressures from discount rivals, such as Aldi, along with traditional peers, such as Tesco.
- I’d be much happier to stash the cash in 5%-yielding LXI REIT. Like Civitas, this property investment trust has also raised its dividend target recently, thanks to strong trading. Rent collection has remained “robust” despite the sluggish economy, a phenomenon that’s down, in large part, to its focus on recession-proof segments like discount food stores. It’s a quality income investors can take huge comfort from given the prospect of a prolonged and painful economic downturn.
More UK shares to help you retire early
The London stock market is packed with top income shares like LXI REIT and Civitas. But investors need to be careful as big-yielding duds like Sainsbury’s can cost you a fortune in the long run.
With the help of The Motley Fool’s epic library of exclusive reports, you can avoid the investment traps and know where to find the genuine dividend heroes. They could even help you get rich and retire early.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. 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.