UK shares: 1 dividend stock I own to combat inflation

This Fool is looking for quality UK shares to combat inflation through consistent and stable returns as well as growth prospects.

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Some UK shares could boost my holdings and help me combat soaring inflation. I believe Sage Group (LSE:SGE) is one such stock. Here’s why I added the shares to my holdings.

Software for businesses

As a quick reminder, Sage is a software solutions provider that helps small to medium-sized enterprises with their accounting. Accounting is a mandatory part of business so companies can keep up with their finances.

Recent macroeconomic headwinds have not been kind to many UK shares. Soaring inflation, the cost-of-living crisis, coupled with rising costs and the supply chain crisis has weakened the economic outlook. In addition to this, the tragic events in Ukraine and issues noted above caused a stock market correction in March.

So what’s happening with Sage shares currently? Well, as I write, they’re trading for 629p. At this time last year, the stock was trading for 690p, which is a 8% fall over a 12-month period. In 2022 alone, they’re down 26% from 852p to current levels. Furthermore, in the face of economic issues, many investors have moved away from growth stocks like Sage to more defensive shares.

UK shares have risks

One of Sage’s most attractive selling points in recent years has been its remarkable growth journey. When I look at its share price, it looks like any recovery or further growth could already be priced in, however. This is despite the fact the shares have fallen in recent months. They’re currently on a price-to-earnings ratio of 23, which could be considered expensive.

In the tech world, competition is intense. There are many players vying for market dominance. In recent times, tech firm Xero launched its own accounting and payroll software too. This competition and current market outlook could hinder Sage’s performance and any returns I hope to make as a shareholder.

Why I bought Sage shares

In the face of soaring inflation, I want to ensure my holdings are providing me with passive income via dividend payments. Sage shares do just that. The shares are currently providing a dividend yield of just under 3%. I am aware, however, that dividends can be cancelled at the discretion of the business at any time.

Performance underpins dividend payments so let’s take a look at Sage’s numbers. I do understand that past performance is not a guarantee of the future, however. Sage has recorded consistent levels of revenue and profit over the past four years. This includes during the period affected by the pandemic, when many other UK shares saw performance levels dip.

Another aspect that I like about Sage is its growth journey to date. It has managed to grow organically as well as through acquisitions. I like when a business acquires others to enhance its offering and boost performance as well as shareholder returns. Finally, it has moved with the times in terms of technology too. It recently adopted a software-as-a-subscription (SaaS) model, replacing its old on-premise model. This should help increase performance and returns too.

I purchased Sage shares earlier in the year. Despite the shares falling a bit since I added them to my holdings, I expect them to bounce back over the longer term. Furthermore, I expect the shares to continue boosting my passive income stream as well.

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.

Jabran Khan owns shares in Sage Group. The Motley Fool UK has recommended Sage Group. 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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