It’s getting harder for UK share investors to find dividend shares whose yields offset the problem of inflation. An era of low interest rates meant that there was a galaxy of stocks offering inflation-beating dividend yields. However, soaring inflation since the spring has made it increasingly difficult for income investors like me to make a positive return on a near-term basis.
The latest consumer price inflation (CPI) gauge in the UK showed prices soar by an eye-popping 4.2% year-on-year. October’s figure surged further past the Bank of England’s target of 2% to 10-year highs. Commentary coming out of the Bank of England suggests that CPI will continue to climb, too, as energy prices rocket, wages rise, and supply chain issues persist.
This week Bank of England deputy Ben Broadbent said that rising energy bills will push inflation “comfortably” above 5% in spring 2022. Weak economic growth might mean the Bank remains reluctant to hike rates to combat the problem, too.
Two cheap dividend shares I’d buy today
With this in mind, here are two big dividend paying shares I’d buy for 2022. Yields for each of these sit well above 5%, giving me a good chance of making a positive return from an income perspective.
Investment interest in gold, a commodity that’s bought as protection against inflation, is getting back into gear. This bodes well for producers of the precious metal such as Centamin (LSE: CEY). The latest World Gold Council data showed holdings in gold-backed ETFs rise by a net 13.6 tonnes in November. This was the first such rise in four months.
Inflationary pressures aren’t the only phenomenon that could keep pushing gold demand higher either. Rising concerns over Omicron and China’s real estate industry, for example, a just a couple of other potential price drivers. I’d buy Centamin despite the threat posed to commodity values from a rising US dollar. This dampens demand by effectively making it less cost-effective to buy assets that are priced in dollars.
Centamin’s dividend yield for 2022 sits an inflation-beating 5.6%.
#2: Direct Line Insurance Group
I’m giving Direct Line Insurance Group (LSE: DLG) a close look today, too. And it’s not just because of its mighty 8.5% yield for next year, either. I think this UK dividend share could be a great way to protect myself against the dangers threatening the economic rebound. After all, sales of general and car insurance policies remain stable even when the pressures on consumer spending power increase.
I also like Direct Line because its brands (which also include Churchill insurance and Green Flag rescue) are some of the most trusted out there. I’m excited, too, by the massive investment it’s making in tech to attract customers and push down costs. This should pay off handsomely as the digital revolution clicks through the gears. I’d buy the insurer despite the threat posed to its revenues by popular price comparison websites.