The Motley Fool

2 inflation-busting dividend investments for a starter portfolio

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Person using calculator next to charts and graphs
Image source: Getty Images.

Inflation presents special challenges to investors. That’s because if you want to preserve the spending power of your investments, you will need to earn a rate of return which is at least equal to the rate of inflation.

With UK interest rates currently well below the inflation rate, cash is a big loser. Thankfully though, there are some investments that could actually benefit from higher inflation, and today I’m going to take a closer look at two of them.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Property

Property investments are a natural hedge against inflation, since landlords have the ability to periodically review rents to reflect unexpected bouts of inflation, among other market factors. And as property represents a ‘real’ asset, property values have held up well against inflation over the very long term.

Landlords can also get added protection through the linking of rent increases to the rate of RPI-inflation. Secure Income REIT (LSE: SIR) is one such commercial property landlord which has taken advantage of these RPI-linked leases.

The REIT has much greater income predictability than most property portfolios, given that 86% of its rental income comes from leases which benefit RPI protection, while a further 13% have fixed uplifts.

Vacancy risk

It has also protected itself from the risk of vacancy by sticking only to long-term lets with strong covenants. With a weighted average unexpired lease term of 22.2 years, and no break options, it has one of the longest average unexpired lease lengths in the REIT sector. This means its rental income should hold up well even during if economic conditions turn sour.

One downside, however, is its high level of tenant concentration, which could increase the risks resulting from a potential default by a single large tenant.

Based on its Friday’s share price of 373p, the REIT currently offers a yield of 3.7% and trades at a 1% premium to its NAV.

Renewable energy

Infrastructure investments are another way to beat inflation, and in this sector, I’m keen on the Bluefield Solar Income Fund (LSE: BSIF). It is one of the biggest solar investment trusts in the UK, with a total net asset value of roughly £400m.

It has a great deal of protection against rising inflation, since it earns government subsidies, via Feed-in tariff and CfD subsidies, that are directly linked to the rate of inflation. In fact, management is so confident that rising inflation would benefit its earnings potential that it has in place a dividend policy which is linked to the rate of RPI inflation.

Reflecting the accelerating pace of inflation, its dividend growth has also accelerated. For its 2017 financial year, the company paid a total dividend of 7.43p per share, reflecting the RPI increase of 3.5% in July 2017.

The company also has some protection against rising interest rates since a majority of its debt is secured on fixed interest rate terms. This would mean that should the Bank of England attempt to combat higher inflation by raising interest rates, its average cost of debt would not rise by much — limiting the impact of a potential drag on its earnings.

Shares in the fund currently offer investors a yield of 6.6%.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.