I’ve been on the lookout for high-yield dividend stocks for my portfolio. Passive income from dividend-paying stocks forms a core part of my strategy, especially amid the current levels of inflation. With inflation hitting 6.2% in February, I’m keen to find stable dividend-paying stocks that can help me negate its impact on my portfolio. So here are three stocks I think could help.
Lloyds
If I buy Lloyds (LSE:LLOY) now, I can expect a dividend yield of 4.3% from this blue-chip stock. The firm had a dividend coverage ratio of 3.75 in 2021, suggesting it could easily afford to pay the attractive dividend payments. I know it doesn’t rival the current inflation rate, but I’m also confident about Lloyds’ growth potential.
Lloyds relies on traditional lending more than its industry peers do. As such, interest rate hikes are likely to prove a useful tailwind, allowing the bank to boost its margins.
Performance over the past year has been strong too. Net income rose to £15.8bn, a 9% rise. Underlying net interest income increased to £11.1bn, a 4% rise.
The bank had been buoyed by increased mortgage lending. Although it is worth noting that higher interest rates could see demand for homes calm down in the short term.
Abrdn
Shares in investment manager Abrdn (LSE: ABDN) have fallen 13% this year. This unloved FTSE 100 stock has been falling for some time as investors continue to withdraw money from Abrdn’s funds.
One of the most attractive things about Abrdn is its dividend yield. If I buy in now I can expect a 6.8% annual income. However, there are concerns that it’s not sustainable with the dividend coverage ratio being 0.95 in 2021. The firm is looking to increase its coverage before it increases the dividend.
At least in 2021 the net outflow of investor money shrank to £6.2bn, from £29bn in 2020. But even more positively, profit from continuing operations rose by 17% to £995m. This was the firm’s best performance in five years. I recently bought some shares as the price dipped.
Legal & General
The Legal & General (LSE:LGEN) share price tumbled following the invasion of Ukraine but recovered slightly in early March. The recovery came as the multinational financial services firm raised its dividend on the back of a 39% rise in annual pre-tax profits.
Owning this stock, I can expect an annualised dividend payout of 6.77%. Dividend coverage in 2021 was 1.85. It could be healthier, but it is not bad at all.
2021 represented Legal & General’s best year in the last five, with post-tax profit increasing by 28% to £2.05bn.
Currently the stock sits nearly 10% down on where it was three months ago, despite the positive performance data. Its price-to-earnings ratio (P/E) — which measures its current share price relative to its earnings per share (EPS) — stands at 7.9.
This hasn’t been the best stock for long-term share price growth, down nearly 5% over the past three years, and that remains a risk. But I still recently bought it.
