2 cheap dividend stocks I’d buy to combat runaway inflation

There are many ways UK share investors can defend themselves as inflation rises. Here are two dividend stocks I’d buy to protect my wealth.

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Inflation’s going through the roof at the moment. Labour shortages are pushing up wages, rising raw material prices are increasing manufacturer costs, and supply chain disruptions are causing swathes of empty store shelves.

Fortunately, there are ways UK share investors can protect themselves against runaway inflation, such as by buying big-yielding dividend stocks.

Consumer price inflation (CPI) recently struck nine-year highs of 3.2%. On Thursday, the Bank of England suggested that inflation could rise above 4% in the months ahead too, and stay around those levels until the second half of 2022.

Thankfully, there’s a broad range of great dividend-paying stocks whose yields surpass even that eye-watering 4% figure. The income provided by these UK shares is allowing me to effectively increase the value of my wealth, even as CPI is booming.

2 dividend stocks on my radar

Fortunately, I already own a range of UK shares that offer inflation-busting yields. But I’m looking to bulk up my holdings of big-dividend-paying stocks, given the current inflationary boom. Here are two more I’m considering buying for my investment portfolio.

1) Gold star

Gold miner Centamin (LSE: CNY) is one of the best dividend stocks to buy to shield from rampant inflation. Firstly, precious metals tend to rise in price in an ultra-inflationary environment as the value of paper currencies comes into question and investors seek refuge in traditional ‘harder’ currencies. So, in my opinion, the profits outlook for this UK mining share looks pretty tasty.

Secondly, Centamin’s dividend yield currently sits at a staggering 7.4%, well above today’s rate of inflation. Of course, there’s a danger the company won’t be able to effectively capitalise on this encouraging price environment. Mining for metals is notoriously complex and production can grind to a halt for a variety of reasons. In my opinion though, this danger’s baked into Centamin’s low valuation. It trades on a forward price-to-earnings (P/E) ratio of just 10 times today.

2) A FTSE 100 cash machine

FTSE 100 stock Aviva (LSE: AV) is also on my radar as inflation soars. This life insurance colossus carries a glorious 5.5% dividend yield for 2020. I’m also attracted by this dividend stock’s rock-bottom forward P/E ratio of 9 times.

I like Aviva because it has mountains of cash on its balance sheet. Its Solvency II shareholder cover ratio remains above 200%, comfortably above regulatory requirements. And it has pledged to share its considerable capital with investors over the next year. Last month, it launched a £750m share buyback programme as part of a broader drive to return £4bn worth of capital to shareholders by mid-2022.

You might be wondering why the Aviva share price is so cheap. The business has undergone significant restructuring in recent years and has divested almost all of its overseas divisions. This has raised fears that the insurer might struggle to generate profits in the future.

While this is a risk, Aviva’s position as a leader in its remaining markets should still help it deliver great returns now, and in the years ahead.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Royston Wild has no position in any of the 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.

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