What’s the best investing strategy to go for while we’re still suffering from the 2020 stock market crash? In a lot of ways, I don’t think it really matters. Whatever your strategy, you’re going to get shares more cheaply now than last year. I think there are some really nice buys out there for growth investors at the moment, but my preferred approach is to go for long-term dividend shares. And I see the FTSE 100 as full of top buys right now.
According to the most recent Dividend Dashboard from AJ Bell, analysts expect the FTSE 100 to pay £62bn in dividends this year, down from £91bn. But forecasts still suggest an impressive dividend recovery in 2021. Earlier in the year, the predicted Footsie dividend yield stood at 4.7%. It’s now at 3.6%. But that’s still pretty decent, and a lot more than you’d get from a Cash ISA paying 1% or so.
The fact that a lot of companies have suspended their dividends in the wake of the Covid-19 crisis does not discourage me at all. I’m not investing for dividends today, I’m after a long-term income stream. Buying companies now, after they’ve suspended their dividends, and stashing them in a Stocks and Shares ISA, can pave the way for higher future yields.
Best dividend shares?
Housebuilder Taylor Wimpey is a good example. The 2018 ordinary dividend yielded 4.6% at the time. The 2019 final dividend was pulled in the crash, along with many other dividend shares. And the overall 2020 dividend is likely to be low at best. But when the company gets back to normal, even that 2018 dividend would yield 5.3% on today’s depressed share price. And the forecast dividend for 2021 would yield 7.2%.
Forecasts are probably not at their most reliable right now. But a couple of percent extra on the dividend yield due to a depressed share price can make a huge difference over the long term. I’d buy Taylor Wimpey for its long-term dividend prospects, even if it’s not paying anything right now.
Some companies have maintained their dividends, and I looked at one recently. It’s Bunzl, which distributes a whole host of things including cleaning and hygiene supplies, and healthcare consumables. Those are in big demand now, and Bunzl shares have gained in 2020. Crucially, the suspended 2019 final dividend is now being paid a little later, meaning the firm has raised its dividend for 27 years in a row. When dividend shares provide capital growth too, that’s a winning combination.
Banks for long-term cash
Banks are very unpopular with investors now. They’ve been forced to cut their dividends by the FCA, and their share prices have crashed. Will they return to looking like attractive FTSE 100 dividend shares? Unless we have a seriously devastating recession that cripples the country for years, I think it’s inevitable that they will. I reckon you could just pick a bank, any bank – Lloyds, NatWest, whichever. Then look forward to decades of dividend income, with share price recovery gains thrown in too, hopefully.
I’m convinced that investing in a diversified portfolio of dividend shares in an ISA could be the best thing to do right now.