We here at The Motley Fool believe the early 2020 stock market crash provides an exceptional opportunity for UK share investors to make a fortune.
History shows us that global share markets always rebound strongly in the years following a heavy correction. Those that buy in at the ground level can, therefore, make a killing during the subsequent bull market.
We wouldn’t encourage UK share investors to start throwing cheques about like confetti though! Sure, there are plenty of top-quality companies that can be picked up for next to nothing right now. But there are also a lot of investment traps waiting to catch people out.
Scores of companies with previously robust profit outlooks are standing on shaky ground following the Covid-19 crisis. Plenty of UK shares are also nursing wafer-thin balance sheets (I’ve been burnt badly by my dalliance with debt-heavy Cineworld).
Beware of the bloodbath
These issues provide a toxic combination for those seeking healthy income flows, as recent data from GraniteShares shows.
The exchange-traded fund provider says that a whopping 493 UK shares cancelled, cut, or suspended dividend payments between 1 January and 23 November. This comprises 445 from New Year’s Day to July 24, and 48 from that late summer date to November 23.
Not even investors in blue-chip companies have been saved from the bloodbath. GraniteShares analysis shows that 51 FTSE 100 companies have had to take action, along with 115 UK shares from the FTSE 250. Additionally, some 149 companies from the AIM index have also reduced, cancelled, or postponed dividends.
And GraniteShares doesn’t think the carnage is over yet. Chief executive William Rhind said: “The expected slowdown in GDP in the UK and in many other countries in the fourth quarter means that companies may be under additional pressure to preserve cash, which could put further pressure on dividends. It is likely that investors will face a long wait until they see dividends return to their pre-Covid levels.”
How I’m investing in UK shares for 2021
The timing of this dividend slashing couldn’t be worse. Rhind added: “They are more important than ever now that interest rates are so low.”
I don’t think that UK share pickers should stop investing to generate big dividend income though.
Firstly, there are still plenty of brilliant UK shares out there that haven’t reduced or stopped paying dividends. Those which should continue doling them out whatever happens to the global economy in 2021.
I’ve bought big-yielding Tritax Big Box REIT in my ISA in recent months, for example. It’s a robust balance sheet and a sound profits outlook, thanks to its huge exposure to e-commerce. And there are many other rock-solid stocks like this I can choose from.
And secondly, many of these dividend heroes can be picked up at little cost, as I suggested earlier. This gives UK share investors the chance to supercharge their long-term returns too.