With inflation at 9%, here are 3 big dividend stocks I’d buy now

Inflation has hit a 40-year high of 9%. Roland Head names three dividend stocks with 6%+ yields he’d buy for additional income.

| More on:
A person holding onto a fan of twenty pound notes

Image source: Getty Images.

UK inflation hit a 40-year high of 9% in April, according to the latest official figures. With prices surging, I’m looking for dividend stocks with the potential to provide extra income and long-term growth.

The three companies I’m looking at today all offer dividend yields between 6% and 9%. I think they could be good buys for my portfolio in this difficult market.

Inflation Is Coming

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!

Click here to claim your copy now!

A safe 9% yield?

UK financial stocks in general are currently out of fashion, but I think that rising interest rates could benefit many of these businesses.

One FTSE 100 financial stock that’s caught my eye is pension and asset management group M&G (LSE: MNG). This UK-focused business was spun out of its former parent Prudential in late 2019.

UK-focused M&G is a fairly mature and slow-growth business. One risk is that it could fail to find new areas of growth. However, recent changes and targeted acquisitions suggest to me that CEO John Foley will find ways to expand the business.

In the meantime, I expect M&G to continue paying generous dividends, thanks to its strong cash generation. Broker forecasts suggest a payout of 19.5p per share in 2022, giving a 9% yield. This bumper yield looks fairly safe to me, so I’m tempted to add this big dividend stock to my portfolio.

This 6%-yielder could be cheap

Vodafone Group (LSE: VOD) has just attracted a major new backer. UAE telecoms group e& (formerly Etisalat) has taken a 9.8% stake in the UK-based business.

e& says it sees Vodafone’s current share price as “a compelling and attractive valuation”. The Middle Eastern business expects to profit from the investment through “potential capital gains and dividends”.

I’m positive about Vodafone too. This week’s full-year results showed revenues up 4% to €45,580m, with operating profit up 11% to €5,664m. The dividend was held at 9 eurocents a share, giving a well-supported 6.4% yield.

Vodafone boss Nick Read has done a good job so far, in my view. But he’s now coming under pressure from investors to find a way to improve the profitability of the business.

I agree that growth and profitability have been too low. But performance is starting to improve and I expect further progress. In the meantime, I think Vodafone shares could be cheap, on just 12 times forecast earnings.

A top retail dividend stock

My final pick is homewares retailer Dunelm Group (LSE: DNLM). Sales and profits boomed at this family-controlled business during the pandemic, as locked-down Britons upgraded their homes.

Slightly to my surprise, progress has stayed strong so far this year. Dunelm’s sales for the nine months to 26 March were 25% higher than the year before – and 37% higher than before the pandemic.

Dunelm shares have fallen by nearly 40% over the last year, as investors have priced in a post-pandemic slowdown. Although broker forecasts suggest profits will flatten out over the coming year, I reckon the stock’s price/earnings ratio of 11 now looks too cheap.

In my view, Dunelm is one of the best quality UK retailers, with high margins and good cash generation. Current forecasts give the shares a dividend yield of 6% for 2022/23, with a return to growth the following year.

I’ve been buying Dunelm for my portfolio.

More on Investing Articles

Young brown woman delighted with what she sees on her screen
Investing Articles

3 easy actions that could boost my stock market returns

The UK stock market is going through a sticky patch so this Fool is looking for ways to improve his…

Read more »

Hispanic man using laptop in home office and drinking coffee
Investing Articles

Boohoo shares: time for me to admit defeat?

This Fool is nursing heavy losses from his Boohoo Group (LON: BOO) shares. Should he sell up and move on?

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

6% dividend yields! 2 cheap UK shares to buy in July

Harshil Patel considers two cheap UK shares paying fairly high dividends. He'd consider them for his Stocks and Shares ISA.

Read more »

Social media and digital online concept, woman using smartphone
Investing Articles

Will Lloyds shares recover in 2022?

Lloyds shares have struggled this year and the looming recession won't help. But I'd still buy them today.

Read more »

Two hands holding champagne glasses toasting each other with Paris in the background
Investing Articles

Can the stock market make me rich even now?

Here are three ways I'm coping with the stock market's recent bout of weakness and aiming to build wealth in…

Read more »

Cogs turning against each other
Investing Articles

3 top investment trusts to buy right now

Investment trusts offer a wide range of options for investors. And in troubled times, they provide some safety through diversification…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Why hasn’t the FTSE 100 crashed in 2022?

The catastrophic events of 2022 have left investors around the globe fearing the worst for stock markets. And some have…

Read more »

Trader on video call from his home office
Investing Articles

2 inflation-resistant FTSE 100 stocks to buy today

Soaring inflation could dent my returns if I don't take care. Here are two top inflation-resistant FTSE 100 stocks I'd…

Read more »