While payouts can never be guaranteed, one way of taking the sting out of inflation is to own big dividend stocks. Here are three that currently take my fancy from the FTSE 100.
Dependable dividend hiker
Top-tier insurance behemoth Legal & General (LSE: LGEN) would definitely be on my list of inflation-busting shares to buy. Analysts currently have the company returning 19.4p per share in FY22. At today’s share price, this becomes a yield of 6.7%. That’s pretty much double what I’d get from the index as a whole!
Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!
Yes, the nature of Legal & General’s business means its share price performance is dictated to some extent by the health of the UK (and global) economy. However, a 22% return over the last five years beats the frankly pretty awful 5% achieved by the FTSE 100.
It’s also worth noting that, bar the anomaly that was 2020, the company has been a consistent hiker of cash payouts. An already-sizeable dividend yield that keeps growing? That’s just what I’d be looking for if I were determined to protect my wealth from the “silent killer“.
At just nine times forecast earnings, I’m not about to complain over the price either.
Safe as houses
Housebuilder Taylor Wimpey (LSE: PSN) is another stock for tackling rising living costs. It’s got a great track record of returning increasing amounts of cash to its owners. This trend doesn’t look like reversing in 2022.
As things stand, the £5.5bn cap company has a stonking forecast yield of 7.9%. To put that in perspective, even the best Cash ISA right now offers just 0.61% in interest. Importantly, the extent to which this is likely to be covered by profit (and therefore likely to be paid) is also far higher than over at rival Persimmon. To me, this makes Taylor Wimpey the better buy of the two.
Government pressure on developers to cover the costs of removing dangerous cladding from flats across the UK means housebuilders haven’t had the best of starts to 2022. However, news that prices in January climbed at the fastest annual pace in 17 years suggests the property boom still has legs to it.
At eight times earnings, I’d be happy to buy Taylor Wimpey for the passive income it throws off.
A final stock I’d consider buying to counter the impact of inflation is precious metals group Polymetal International (LSE: POLY). At 9.3%, it’s currently one of the highest-yielding stocks in the FTSE 100.
Normally, such a huge number would be a red flag. Since dividend yields are negatively correlated with share prices (when one goes up, the other goes down), Polymetal’s incredible cash returns imply investors are concerned about the company’s outlook.
That’s probably not far from the truth. Clearly, the ongoing tension in Eastern Europe can’t be helping sentiment. Polymetal does, after all, operate mines in Russia and Kazakhstan. The gold price has also been in the doldrums recently.
That said, a lot of this looks priced in. The shares have tumbled 34% in the last year alone and now trade at less than seven times earnings. That’s arguably very cheap considering the regularly-hiked dividend should be comfortably covered by earnings.
Throw in the diversification Polymetal offers by operating in a completely different sector and I think this is another worthy candidate for an inflation-busting portfolio.