2 UK stocks I’d buy to help offset this inflation headache

Jon Smith explains how he’s trying to generate returns from UK stocks with both income and growth shares on his target list.

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Wherever I turn at the moment, I see news about how high inflation is. The latest figures for July showed that consumer prices rose 10.1% year-on-year. Clearly, I need to be careful with my cash. On the one hand I need to keep some on hand to pay for expenses. But at the same time, inflation erodes my money’s value. Therefore, here are a couple of UK stocks I’m thinking of buying to help me out.

Hunting for income

The first company I like is Legal & General (LSE:LGEN). My aim with this stock is to try and benefit from the dividend payments. At the moment, the dividend yield is 6.91%. But hang on, isn’t inflation at 10.1%? It’s true, but I’d rather have an income stream I can depend on to offset some of the impact. There are some companies with higher yields, but some of these have been pushed higher due to falling share prices. This is a potential red flag for me.

As for Legal & General, the share price is modestly up 1% over the past year, unlike some stocks with attractive yields based mainly on the fact that their share prices have fallen. This encourages me that the business is going to be able to continue to pay out dividends to help my inflation headache in the period to come.

This is further backed up by recent H1 results. Operating profit was up 8% versus the same period last year. That allowed the interim dividend to be raised by 5%. I accept that the investment management business is never going to set the world on fire with huge growth. But for a steady dividend payer, I think it ticks the box completely.

One concern I do note is the reliance that the company has on broader financial markets. If investors pull money out due to worries about the economy, the business will make less money due to lower assets under management.

A UK stock with further growth potential

Aside from a dividend stalwart, I want to also add a growth option. To this end, I like Investec (LSE:INVP). The FTSE 250-listed bank has enjoyed a share price rally of 56% over the past year. I don’t think that this move higher has finished. If I’m correct, then the share price gains could help me to reduce the impact of inflation as my capital is appreciating.

The company is similar to most major banks, but is more focused on private and corporate banking instead of retail accounts. It reported net inflow of £1.9bn in the latest annual earnings report. Given the increase in interest rates, it’ll be earning significant sums on this money, even after taking into account the rate it pays to customers.

Given high inflation, I think the Bank of England is going to be forced to raise interest rates for some time. This is going to help the bank even more, hence why I think this growth stock could outperform.

My biggest worry that I’ve had for some time is the exposure it has to South Africa. I still think the geopolitical situation over there has the potential to boil over at any moment, which would be damaging.

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 assessed. Consider taking independent financial advice.

Jon Smith 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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