When searching for income stocks to fight inflation, it’s understandable that a lot of investors gravitate towards the big guns in the FTSE 100 and FTSE 250. I get that. Although payouts still can’t be guaranteed, there’s something comforting about owning slices of huge, established companies.
That said, I do think it’s always worth looking for hidden dividend diamonds from lower down the market spectrum. Here are three examples, all of which boast yields over 7%.
Regional Real Estate Investment Trust (LSE: RGL) operates a 160-property portfolio, mostly offices in centres outside of the M25. The value of the entire estate now stands at £874m.
REITs are a great option for income seekers, in my view. In addition to offering a fuss-free way of investing in property, they also help to diversify a portfolio. Oh, and the dividend stream tends to be pretty good too.
As things stand, Regional is forecast to yield a stonking 8.9% in FY22! That’s not enough to beat inflation, but it’s a far better option for me than keeping cash in a bank account.
Risks here include the potential for lower demand for the company’s sites as working from home continues to be popular following the pandemic. Inflationary pressures could also see some existing tenants struggle to pay rent.
However, I like what I see here. I’d be willing to take a position in Regional.
Central Asia Metals
A lot of UK investors will hold shares in FTSE 100 miners for the sizeable yields they offer. However, at 8.8%, small-cap Central Asia Metals (LSE: CAML) is another dividend monster.
Sure, there’s no ‘free lunch’ here. Investing in the mining sector can be a rollercoaster ride, particularly as explorers and producers have no control over the price of the metals and minerals they dig for. The fact that Central Asia Metals is principally based in Kazakhstan might be enough to put some people off too.
On a more positive note, the demand for metals look set to soar in the years ahead as the transition to green energy continues to gather pace. As a low-cost producer of copper, zinc and lead (the latter two coming from its mine in North Macedonia), the £400m-cap could be ready to hit a purple patch. Again, I’d be comfortable buying this stock.
With a market capitalisation of under £90m, ceramic and porcelain tile distributor Topps Tiles (LSE: TPT) is approaching micro-cap status. The tendency for stocks this small to be pretty volatile might not suit all investors, but I think the potential 7.1% dividend yield on offer may make up for this.
What are the dangers here? Well, Topps Tiles could see sales drop if home construction/upgrades slow in the near term as a result of the recession. This might explain why the shares are down 30% in 2022, so far. There’s also quite a bit of debt on the balance sheet to ponder.
However, a forecast price-to-earnings (P/E) ratio of a little less than eight already looks pretty low to me. Unless analysts become seriously bearish, the aforementioned dividend should also be safely covered by profit. As long as I’m appropriately diversified elsewhere, I could be tempted to buy today.