Confidence on UK share markets remains pretty delicate as we move into mid-February. Neither the FTSE 100 nor the FTSE 250 have made any notable progress in the year to date. In fact the Footsie is down since the turn of 2021 as enduring fears over Covid-19 provoke investor jitters.
I consider this to be a wasted opportunity. This is because UK stock markets are packed with quality stocks that should thrive over the long term. And a large number of these are still trading at rock-bottom prices following the 2020 stock market crash.
Careful now!
Of course, investors need to be careful as the public health emergency rolls on. Shareholder returns took an almighty smack last year as hundreds of UK shares cut, postponed or cancelled dividends following the coronavirus outbreak. There could be a repeat in 2021 should Covid-19 continue to spread, creating more profits woe and damaging already-strained balance sheets.
Should you invest £1,000 in Direct Line right now?
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But as a long-term investor myself, I’m continuing to invest in my Stocks and Shares ISA. And I will continue to do so, even if stories about Covid-19 variants cast doubts on the economic recovery. I think there are stacks of quality UK shares with the strength to keep weathering the impact of lockdowns and travel restrictions. Defensive stocks like this include telecoms providers, beverages manufacturers and makers of personal goods. Demand for their goods and services remains fairly constant during economic upturns and downturns.
2 UK dividend shares on my ISA watchlist
Here are two UK stocks I’m thinking of adding to my Stocks and Shares ISA this month. I think they’re in great shape to keep paying big dividends whatever happens in the fight against Covid-19.
#1: Direct Line Insurance Group. Non-life insurance demand tends to be stable irrespective of broader economic conditions. It’s particularly predictable when it comes to car insurance as having cover on your motor is a legal requirement. There is a risk that further Covid-19 lockdowns could hamper insurance uptake as Britons stay indoors, thus hitting profits at Direct Line. But on the other side, infection fears have increased the number of people picking their cars over using public transport. This will likely continue as long as Covid-19 persists. Today Direct Line carries a meaty 7.5% dividend yield for 2021.
#2: Polymetal International. Gold prices flew to record peaks in 2020 as the emergence of Covid-19 boosted demand for flight-to-safety assets. The successful rollout of vaccines in stemming the crisis might make bullion values backpedal from current levels below those all-time highs. And this would be detrimental for gold producers like Polymetal, naturally. But there are other reasons why I think gold prices could still rise regardless of this scenario. The prospect of a sinking US dollar is one, making it cheaper to buy greenback-denominated gold. So is broad concern over rocketing inflation due to ongoing central bank and government stimulus. These are macroeconomic issues that could continue long past 2021 too. I’d buy UK gold-producing shares like 8.3%-yielding Polymetal to ride this theme.
