With inflation hitting its highest point since 1992, investors of dividend stocks may be about to suffer. Why? Because higher prices reduce consumer spending. Lower spending then leads to a slowdown in growth. And, subsequently, plenty of businesses will likely endure a drop in sales, impacting cashflows and dividends respectively.
That certainly doesn’t sound pleasant. However, I’ve spotted three potentially interesting passive income opportunities for my portfolio that might be immune to this suffering. And to top it all off, these dividend stocks are also looking rather cheap. Let’s explore!
Profiting from inflation
Not all businesses suffer from rising material prices. The mining sector is actually a great beneficiary of commodity inflation as operational expenditures are mostly fixed. In other words, rising metal prices almost directly translate into wider profit margins.
With that in mind, Anglo Pacific Group (LSE:APF) looks particularly promising. The company is a royalties business, meaning it doesn’t actually do any mining. Instead, the firm provides initial funding for other groups to set up an extraction site in exchange for a portion of the minerals dug up.
With skyrocketing demand for Anglo Pacific’s products, including battery metals like cobalt, copper, and vanadium, profits have exploded. Looking at the latest results, royalties have surged by 80% to $85.6m (£65.8m), pushing after-tax income to $37.5m (£28.8m) – a trend I feel is likely to continue throughout May and the rest of the year.
Commodity prices will eventually start to fall as other mining groups seek to capitalise on the opportunity. And that will undoubtedly impact the firm’s impressive 44% profit margin. However, today, the stock offers a solid 3.8% dividend yield at a relatively cheap price-to-earnings ratio of 13.5. Therefore, personally, I feel this is a risk worth taking.
Is this a recession-proof dividend stock?
With consumers looking to cut spending, plenty of premium and luxury products are often the first to get dropped from shopping lists. But as budgets get tighter, the allure of discount retailers like B&M European Value Retail (LSE:BME) gets more potent.
While product variety can be somewhat limited, customers can often find popular branded items at significantly lower prices than in an average supermarket. And with management aggressively expanding its store count in recent years, the group looks perfectly positioned to offer its low prices to the vast majority of the British population.
Having said that, B&M is by no means a risk-free investment. The firm’s lack of online presence could be to its detriment over the long term. Meanwhile, its expansion into France also exposes the bottom line to fluctuating exchange rates.
Yet these risks are worth taking when looking at the valuation. At least that’s what I think. Today, the stock trades at a relatively cheap price-to-earnings ratio of 12.8, which comes paired with a respectable dividend yield of 3.3%. And that, to me, looks like a strong candidate to add to my income portfolio in May and beyond.