2 dividend shares to protect me from soaring inflation

Dividend shares can be an excellent way to keep up with inflation. Our writer explores several options to protect his savings as the cost of living soars.

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Driven by higher energy, transport, and food costs, the UK inflation is rising at a 9.1% rate. That’s its fastest in 40 years. I want to ensure my investments are at least holding onto their buying power. And one way to do so is by owning the best dividend shares.

The FTSE 100 index is a great place to find dividend shares, in my opinion. On average, the shares in this large-cap index yield 4%. That doesn’t sound too bad. But with some homework, it’s possible to find several shares that offer up to 12%.

A 12% FTSE 100 stock?

Yes, British housebuilder Persimmon (LSE:PSN) currently offers a 12% dividend yield.

That sounds mighty high. What’s the catch? Usually I’m sceptical of particularly high dividend yields. That’s because dividends aren’t guaranteed, and the company could cut or suspend its payout at any time.

That said, Persimmon has an excellent track record when it comes to paying dividends. I’d say it’s shareholder-friendly and has paid many special dividends in addition to planned payments. Special dividends are usually paid from additional profits.

And profits and profit margins have been stellar for this housebuilder. It’s a high-quality business with ample cashflow and a rock-solid balance sheet.

Taking the long view

One reason for its above-average dividend yield is because its share price has fallen by 26% over the past year. Concerns of a slowing housing market amid recession risks have contributed to its decline.

But I’d take a long-term view. After such a decline, I reckon Persimmon has become one of the most attractive dividend shares around.

If I own these shares for at least a few years, I think I’ll be rewarded by both chunky dividends and a recovery in share price.

That’s why I’d buy these shares today.  

Reliable dividends

Another high-yielding dividend share that I’d consider is Phoenix Group (LSE:PHNX). This multi-billion-pound company is the largest long-term savings and retirement business in the UK.

With an 8% dividend yield, it doesn’t quite beat inflation right now, but it’s close enough.

Some shares suffer from poor reliability when it comes to dividends. But the opposite holds true for Phoenix Group. It has an enviable track record of paying regular dividends. In addition, it has managed to grow its payment every year for the past six years.

Some of that growth has come by acquiring smaller businesses, but this year’s gain is expected to arrive organically.

Resilient cashflow

Falling share prices like the type we have witnessed this year can be a risk to earnings for this type of business.

But so far, it has proved itself to be a resilient company in volatile markets. It’s ability to hedge its exposures appears to be more robust than many of its competitors.

Some of the best dividend shares that I’ve come across are relatively dull and slow-moving. But they’re well-managed and have a focus on cash flow. Phoenix Group fits exactly as described and I’d definitely consider adding the shares to my Stocks and Shares ISA.

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.

Harshil Patel has no position in any of the shares mentioned. 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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