Here are 2 UK shares I’m buying with inflation-busting 9%+ yields!

Inflation is at a decades-high level in the UK. There are UK shares offering dividend yields way above the inflation rate though. Here are two I’d buy.

| More on:

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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Investing in UK shares can be a great way to beat inflation. Many companies pay dividends to shareholders out of their profits. Depending on the price I have to pay for the shares, I can pick up some pretty hefty dividend yields.

I’ve been screening for UK companies that offer inflation-busting yields. With the Consumer Prices Index rising 5.4% in December, these UK shares should provide real returns for my portfolio.

Exposure to the housing sector

The first company I’ve been researching is residential homebuilder Persimmon (LSE: PSN). It’s one of the UK’s largest businesses with a current market value of £7.5bn, which means it’s a member of the FTSE 100.

I think the income potential is highly attractive for me as a potential shareholder. In fact, if I bought the shares today, I’d be expecting a dividend yield of 10.2% in 2022. Of course, there’s never a guarantee with dividends. The business has to keep trading well and to generate profits for it to pay out cash to shareholders.

The housing shortage in the UK should mean that Persimmon stays profitable in the years ahead, in my view. According to the BBC: “In the 30 years to 2021, three million fewer properties were built than in the previous 30. The population, however, has increased by more than nine million.” Indeed, this places significant importance on companies like Persimmon. As such, City analysts are expecting revenue for the company to grow in each of the next two years.

One additional factor to consider is rising interest rates. The Bank of England has already raised its base rate twice since December. In doing so, the cost of a mortgage should rise, and this may reduce demand in the housing sector. It’s a potential challenge for Persimmons in the months ahead.

Nevertheless, I view the double-digit dividend yield as highly attractive for my portfolio. The structural tailwind from the housing shortage should also mean the company’s homes remain in demand. I’ll be looking to add the shares to my portfolio.

The next UK share I’m buying

I’ve also been considering adding to my position in mining company Rio Tinto (LSE: RIO). The minerals it produces are crucial for decarbonisation and electrification efforts, including for use in electric vehicle batteries, and building wind turbines.

The dividend yield is attractive as it stands. I’d be generating a yield of 9% in 2022 if I bought extra shares today. However, as mentioned, dividends can always be cut if the company’s profits fall.

On this point, a risk factor to consider is the volatility of commodity markets. For example, iron ore prices rocketed to a decade-high in 2021, but crashed back down to earth to end the year. This means Rio Tinto’s profits can be volatile, and therefore the dividend payments can be too.

A further point to note about Rio Tinto is its excellent cash generation. Analysts are expecting a free cash flow yield of over 10% in 2022, which means there should be ample cash left over for the dividend payment.

So, on balance, I’m happy to hold Rio Tinto shares in my portfolio and would add to my position. The current dividend yield is attractive and way above the rate of inflation today.

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 assessed. Consider taking independent financial advice.

Dan Appleby owns shares of Rio Tinto. 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.

More on Investing Articles

Close-up of British bank notes
Investing Articles

I’m considering 100 shares in this FTSE 250 gem to aim for £300 a month in dividends

Mark Hartley outlines why a lesser-known banking stock from the FTSE 250's worth considering for an income portfolio in 2024.

Read more »

Investing Articles

History suggests these UK shares might soar if interest rates are cut in August

Some UK shares could rocket if interest rates fall from its 5.25% high next month. And there's one our writer…

Read more »

Female Doctor In White Coat Having Meeting With Woman Patient In Office
Investing Articles

Here’s why H1 results could boost the AstraZeneca share price

The AstraZeneca share price has been a success story in the past five years. With H1 results due, can it…

Read more »

Investing Articles

£17,365 in savings? Here’s how I’d use it to target a £6,700-a-month passive income

Here's how a lump sum investment could pave the way for me to make a four-figure monthly passive income in…

Read more »

Investing Articles

Down more than 10% in 6 months, Fools are backing these 5 UK stocks to reverse that – and then some! – by 2025

Some of our UK free-site writers have put forward their candidates for turnaround stocks!

Read more »

Investing Articles

Down 23%! Should I buy more CrowdStrike shares for my Stocks and Shares ISA?

Sometimes bad news can be good news for long-term investors. But is that the case for CrowdStrike in relation to…

Read more »

Investing Articles

2 UK shares near 52-week lows I’m considering snapping up

These UK shares are loitering near, or at, 52-week lows. Are these prime opportunities for our writer to boost her…

Read more »

Investing Articles

Unilever: a passive income stock with potential for decades of dividend growth

Stephen Wright thinks Unilever can keep reducing its share count for years to come. And this should help make it…

Read more »