2020 proved to be a catastrophe for dividend investors. According to ETF provider GraniteShares, a staggering 505 UK shares either slashed or postponed dividends in response to Covid-19.
Thankfully, it looks like things will be better for income investors in 2021. Just don’t expect the rollout of Covid-19 vaccines across the world to be the catalyst for a sudden spike in dividend payments. GraniteShares reckons that “although we expect [dividends] to be higher this year than in 2020 they will not return to 2019 levels.”
On top of this, the ETF giant reckons that “many companies to use the crisis as an opportunity to change their dividend policies, with many looking to pay less as they look to strengthening their balance sheets and increase their cash holdings.”
A UK share on my ISA radar
It’s clear UK share investors need to remain careful in 2021 if they’re seeking big dividends. Not even London’s largest and financially-strongest companies were immune to reducing or cancelling shareholder payouts last year as the pandemic struck. And a lumpy economic recovery could see the traditional dividend heroes disappoint again.
GraniteShares data shows that 52 of FTSE 100 businesses took drastic action concerning dividends last year. So did 117 FTSE 250 and 151 AIM-listed companies alongside the traditional tiddlers.
That said, there are still plenty of UK shares that should pay big dividends in 2021. Vodafone Group (LSE: VOD) is one I’d happily buy for my own Stocks and Shares ISA. Heck, I’d snap this FTSE 100 share up today and hold it to the end of the decade at least.
A FTSE 100 firecracker
There’s a lot to like about Vodafone as a dividend stock. Firstly, its starring role in the defensive telecoms sector will protect shareholders from any prolonged downturn in the global economy. Indeed, City analysts are predicting strong and sustained earnings growth despite the Covid-19 crisis.
Bottom-line jumps of more than 30% are predicted for the next two fiscal years (to March 2021 and 2022).
Secondly, the UK share throws out boatloads of cash (free cash flow before spectrum and restructuring costs rose 15% between April and September to €451m). And thirdly, the spinning off of its Towers business will give its balance sheet an extra shot in the arm. The upcoming IPO is expected to generate a tasty €5bn windfall for Vodafone.
City analysts expect this UK telecoms share to keep the full-year dividend locked around 9 euro cents per share in this year. But they also expect a slight increase in shareholder payouts next time out. This creates monster dividend yields of 6.6% and 6.7% for fiscal 2021 and 2022 respectively.
Those enormous yields aren’t the only reason Vodafone offers stunning value today. Predictions of stunning earnings growth leaves it trading on a forward price-to-earnings growth (PEG) ratio of just 0.6.
In my opinion, this FTSE 100 colossus is one of the most attractive UK dividend shares that money can buy.