A 5% dividend yield! A Cheap UK Share I’d Buy for a Bumpy Economic Recovery.

 Confidence across UK share markets remains pretty shallow right now. It’s no surprise perhaps as the Covid-19 crisis rolls on and concerns over virus variants grow. Throw in fears over Brexit and resurgent global trade wars, and, well, there’s plenty to keep investor nerves on tenterhooks.

These aren’t issues that will stop me from continuing to invest in my Stocks and Shares ISA, however. Why? Well there are many defensive (and even counter-cyclical) UK shares that should deliver big returns however the economic recovery pans out in 2021.

A bright gold price outlook

Getting a slice of gold in 2021 is, in my opinion, an intelligent investing strategy in this climate. I’d do this by buying UK shares in companies that haul the shiny stuff out of the ground. This gives investors the chance to ride the gold price and to receive dividends in the process.

It’s possible that gold prices might slip this year should the Covid-19 economic recovery take off. But there are myriad reasons, like rising inflationary fears and a lumpy rebound in the global economy following the pandemic, that I think will keep demand for flight-to-safety assets like bullion quite robust.

There’s another reason why gold prices could receive an extra boost in 2021, too. As the World Gold Council notes, physical demand from China — the world’s number one gold market — is set to recover this year. This is built on expectations that government policy will boost the economic recovery there. It’s also because of stimulus measures to boost consumer activity in the Asian country.

A UK gold share on my radar

I personally would buy shares in FTSE 250-quoted Centamin (LSE: CEY) to make money with gold. As I say, buying gold-digging stocks gives one an opportunity to receive dividends as well as making money from a rising metal price. And the forward yield at this particular mining giant is quite spectacular. At 5%, this smashes the broader forward average of around 3% for UK shares.

That bright outlook for gold prices means that City analysts reckon annual earnings will soar at Centamin. A 17% year on year rise is pencilled in for 2021. And this leaves the company trading on a rock-bottom forward price-to-earnings growth (PEG) multiple of 0.8. Conventional thinking deems that any reading of 1 or below makes a UK share seriously attractive from a pure value perspective.

All this makes Centamin a great buy for the here and now, I believe. But don’t think that the business is just a top buy for these uncertain times. The business announced in December that it is undertaking work at its Sukari mine to generate 450,000 to 500,000 ounces of gold per year from 2024. It is also making steps to lop $100m off its gross annual cost base by that date. All things considered, I think this UK share could deliver titanic shareholder returns for years to come.

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 FTSE 100 shares: a 6%+ UK dividend share I’d buy Today.

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%.

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.

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I would buy these 3 cheap shares to share £12bn in passive income from dividends!

2020 was a brutal year for investors aiming to generate passive income from share dividends. In 2019, cash dividends paid by UK-listed shares totalled a record £110bn. Last year, this figure collapsed to perhaps £60bn, thanks to Covid-19. But as dividends are restored, this year’s total could top £70bn. Remarkably, just five cheap shares now pay a third of all UK dividends. I’d buy these three FTSE 100 dividend dynamos today to generate a lifelong income for my ISA.

Cheap share: Rio Tinto

With banks and oil producers slashing or cancelling their dividends, global miner Rio Tinto (LSE: RIO) should pay the FTSE 100’s biggest dividend by size last year. The Anglo-Australian group is an absolute Goliath of a business, selling iron ore, copper, diamonds, gold and uranium around the globe. For 2020, I expect Rio’s cash pay-out to exceed £5bn, making it the Footsie’s dividend king. Yet Rio’s cheap shares look attractive to me.

As I write, Rio’s stock trades around 5,981p, valuing the group at £101bn. At this level, Rio trades on a price-to-earnings ratio of 18.5 and an earnings yield of 5.4%. Rio’s dividend yield is a chunky 5% a year, almost two percentage points higher than the FTSE 100’s 3% yield. With Rio poised to generate a torrent of cash this year, I see its shares as a firm buy for my income portfolio.

Dividend darling: BAT

Among dividend stocks, British American Tobacco (LSE: BATS) is like Marmite: you either love it or hate it. As the world’s second-largest cigarette manufacturer, BAT is obviously a no-no for ethical investors. But this business has been around since 1902 and has been a core holding of many income portfolios for decades. What’s more, its cheap shares are no more expensive today than they were in late March. This suggests to me that they may be a bargain.

At the current share price of 2,756p, BAT is valued at £62.61bn, making it #7 among the FTSE 100’s giants. A year ago, the BAT share price was riding high at £35, so today it’s at an £8 discount to this peak. At present, BAT stock trades on a price-to-earnings ratio of 10 and an earnings yield of 10%. Even better, BAT’s dividend yield is a whopping 7.7% a year, making its cheap shares a champion provider of passive income to me.

Income hero: Vodafone

My third and final dividend darling is Vodafone Group (LSE: VOD). A household name in telecoms since the Nineties, Vodafone has 625m customers in 65 countries. Yet on 4 September last year, Vodafone shares had slumped to close at 87.1p, their 2020 low. Since then, they have rebounded strongly, but these cheap shares still offer value for income-seekers like me.

As I write, the Vodafone share price hovers around 128.28p, valuing the group at £33.5bn. But Vodafone’s huge cash flows make it very tempting for income investors. Right now, its shares trade on a price-to-earnings ratio of 16.4 and an earnings yield of 6.1%. Vodafone’s dividend yield of nearly 6.6% a year is more than double that of the FTSE 100 index. Also, Vodafone was the Footsie’s #4 dividend payer by size in 2020, making it a stalwart of income funds.

In total, these three giants should pay out more than £12.5bn in regular cash dividends in 2021. That’s why I’d eagerly buy all three today, ideally inside my ISA to enjoy a lifetime of tax-free income.

The post I’d buy these 3 cheap shares to share £12bn in passive income from dividends!

Disclaimer: Any information on this channel is not to be taken as financial advice. The opinions expressed on this channel are not necessarily the opinions of the host. i am not a financial adviser and if you are seeking financial advice. please consult a professional. also any research done by myself or others used in or on this channel may or may not be accurate. this also extends to the opinions of the host and any guests. all material on and in this channel is for education and entertainment purposes only and i can not confirm or deny any of this.

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