Rising inflation is causing global turmoil, dampening investor confidence, and increasing market volatility. With inflation spiking to 9.1% in the UK for May, the highest rate for 40 years, the FTSE 100 is down over 4% year-to-date. In the US, the S&P 500 has taken a massive 20% hit. With rising rates seeing the value of stagnant cash depreciating, I’m on the lookout for high-yield income stocks to help me hedge inflation. Here’s two I’d buy today.
My first pick would be Rio Tinto (LSE: RIO). It is the second-largest metals and mining company in the world, specialising in base metals. Year-to-date, the stock is up nearly 2%.
Rio Tinto currently offers a meaty dividend yield of 11.5%, beating the UK inflation rate and protecting against the potential for my stagnant cash to erode. What I also like about the stock is its low valuation. With a current price-to-earnings ratio (P/E) of just 4.7, this looks cheap. Comparing it to competitor Glencore, which has a current P/E of 15, highlights further the value Rio Tinto provides.
The stock may also provide a stable investment at this moment in time, as inflation tends to see commodity producers benefit. The conflict between Russia and Ukraine has also seen the supply of steel become scarcer all over Europe. This could benefit Rio Tinto as it mines iron ore, a key component of steel. Shorter supplies may see prices driven up, in turn boosting Rio Tinto’s revenues.
However, the business faces threats from within China through ongoing lockdown measures. As these continue, demand from the world’s largest steel producer may decline. That said, this is a short-term concern, and in the long run I think Rio Tinto is a solid buy.
Legal & General
My second pick is Legal & General (LSE: LGEN). The business is a financial and insurance services provider, with a focus on the UK market. 2022 has seen the stock fall by 21%.
With a current dividend yield of 7.4%, this is slightly below the UK inflation rate. However, the business has plans to increase its annual dividends in the years ahead. While dividend payments are not guaranteed of course, buying at the current price could allow me to see greater yields than the current 7.4% in future times.
I also like Legal & General due to its solid foundations. It’s an iconic brand with a solid reputation. And this provides a good platform for future growth. In 2021 the firm posted profits after tax of just over £2bn, up 28% from the year prior. With a market capitalisation of just below £15bn, this also means the company trades on a low P/E ratio of 7.3. Furthermore, its basic earnings per share last year were 34.2p, easily covering the current dividend rate of 18.5p per share.
However, there are risks. The threat of recession may deter customers from regular investments. And in prior financial crises, the business has reduced dividends. However, from a long-term perspective, I’d happily add Legal & General to my portfolio today.