UK’s inflation has been a topic of concern for a few months now. The economic impact of last year’s sudden shutdown is evident now. And the inflation rate rose to 5.1% in November, its highest since 2011. With the FTSE 100 down 1.1% in the last week and the UK reeling from the Omicron spread. Is there any way for investors to navigate this treacherous post-pandemic market?
Historic data shows us that some sectors are relatively ‘inflation proof.’ By combining this data with shares that offer a healthy dividend, I think I have a winning combination of security and steady income that could potentially stabilise my portfolio during inflation.
Cheap mining share
Rio Tinto (LSE:RIO) stock is up 8.8% in the last month and is currently trading for 4,848p at the time of writing this article earlier today. But it still looks very undervalued to me given its profit-to-earnings ratio of 5.5 times and the whopping 10.1% dividend yield. Here’s why I think the miner can be a good barrier to protect my savings during the UK inflation.
Although a lockdown could dampen Rio’s sales, I think governments are better equipped to tackle Omicron. And I think construction efforts will continue without major disruptions. This is highlighted by the rising iron ore prices since mid-November, up 28.4% in a month. Also, investors and analysts often turn to commodities to during a period of higher inflation to counter the diminishing value of cash. And miners like Rio often see an increase in revenue with rising demand and prices.
The rise of green tech is a major boost for Rio. The miner has an abundance of aluminium, copper, and lithium, all crucial in the manufacture of electric vehicles. And the ore prices of these three metals have risen steadily through 2021.
But there are some issues that Rio has to tackle. Its Jadar mine in Serbia could make Rio a lithium superpower. But residents around the project are calling for an environmental impact study, which Rio is yet to produce. Estimates suggest that 80,000 people could be affected by the operation. But the FTSE 100 firm is working on addressing concerns and I think it can continue its stellar growth in 2022.
Inflation-proof share?
The UK’s housing sector has been on a roll lately, with property prices driven up by the increase in demand. And housing shares have historically performed well during periods of inflation. Real estate income could increase during inflation, and developers like Persimmon (LSE:PSN) stand to benefit.
The housebuilder‘s shares come with an incredible 8.5% yield at its current share price of 2,764p. And the company has an established supply chain and generates a lot of raw materials used in-house. This reduces the impact rising costs and could help the company maintain its above-average profit margins. Coupled with the large cash cache of £895m and zero net debt, Persimmon’s looks like a good option for my income portfolio.
The only thing that puts me off an investment in Persimmon today is the cyclical nature of the housing industry. We are at the end of a decade-long housing boom, and analysts expect a minor collapse soon. And with the economy looking turbulent, first-time buyers may think twice before investing in a new home.
But the FTSE 100 share still is an inflation beater in my opinion and I am watching it closely to capitalise on a drop in share price.
