3 share dividends I’d bank on to help beat inflation

It we want to be wealthy in our old age, investment returns that fail to match inflation are no good. I reckon dividends are the way to go.

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The UK inflation rate hit 9% in May, and it seems likely to rise even higher as figures for June and beyond are released. It provides a timely reminder of my minimum aim when buying shares for their dividends.

Over the long term, I want my investments to grow ahead of inflation. But what about today’s shorter-term level? Here, I’m looking at three that I think could help me minimise the effects.

Housebuilder bounty

I hold shares in Persimmon (LSE: PSN). And this year, I’m set to receive dividends of 235p per share. The housebuilder has already paid out its ordinary dividend of 125p per share, in April. And there’s a special dividend of 110p to be paid in July.

On the current share price, that’s a total dividend yield of 12.4%. The Persimmon share price has fallen since the year to which these dividends apply, mind. But even taking a 2021 year-end share price, we’re still looking at a yield of 8%.

If we see the same again this year, buying more at today’s Persimmon share price should hopefully still beat inflation over the next 12 months. Even without a special dividend this year, the basic 125p would yield 6.6%. But analysts still predict special dividends for the next two years.

These do seem likely to come under pressure this year, though, as interest rates lift mortgage costs. But I think my investment should help me beat today’s inflation.

Earthly treasures

Dividends from mining shares have soared. And forecasts for Rio Tinto (LSE: RIO) indicate a yield of 12.4% this year. Depending on how high inflation rises in 2022, that might be enough to beat it.

But there’s a downside risk. The mining sector is notoriously cyclical, and when it hits its next down cycle the sector’s dividends are likely to fall. Even though it offers one of the biggest forecast FTSE 100 yields this year, the Rio Tinto dividend has already been cut twice in the past decade.

Still, if we hope to beat the 2022 inflation surge, just one more year of this huge dividend will be enough, right? After all, inflation is surely likely to peak and then fall again next year, isn’t it?

While I’d love to beat inflation this year, I think such short-term thinking is a mistake. And that brings me to my third choice.

Investment management

I suspect something like M&G (LSE: MNG) is likely to provide a better long-term hedge against inflation. Investment managers suffer when stock markets are under pressure, and the M&G share price has fallen 14% in the past 12 months.

Even if a firm’s underlying investments hold up, they tend to face cash outflows as investors seek safer havens. Still, the share price fall has pushed the yield on M&G dividends up to a predicted 9%. That matches May inflation, which is close. The dividend might be scaled back as the year progresses, though.

But it brings me to my cornerstone in investing to beat inflation. I’m not looking at this year, I’m interested in the long-term future. I’ll surely do better by thinking that way rather than chopping and changing year by year.

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 considered so you should consider taking independent financial advice.

Alan Oscroft has positions in Persimmon. 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.

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