I’m looking for the best dividend shares to buy for my portfolio today. At the same time I’m keeping an eye on inflation and considering how this could affect my returns.
The consumer price inflation (CPI) numbers for June are due for release on 19 July. They’re expected to show that inflation remains elevated at 8.2%. It’s possible that CPI could again come in higher than broker expectations, as it has regularly done since the start of 2023.
So which UK stocks should I buy for dividends in this landscape? Here are two on my radar today for when I have cash to spare.
FRP Advisory Group
Corporate restructuring expert FRP Advisory Group (LSE:FRP) can expect hope strong trading will continue as Britain’s economy struggles and interest rates increase.
Following the pandemic there are vast numbers of debt-laden businesses in the UK. These so-called zombie companies are in serious peril as their borrowing costs rise and consumer spending splutters.
Last week insolvency specialist Begbies Traynor’s executive chairman Ric Traynor told Bloomberg that “over the next 18 months, we’ll see virtually all of them finally come to an end.” This suggests that companies like FRP will remain extremely busy over the short-to-medium term.
Therefore this AIM share could be a rock-solid buy for dividend income. The company also has a well-capitalised balance sheet it can use to deliver shareholder payouts if earnings disappoint. It had a net cash balance of £22.9m as of April.
It’s worth noting that predicted dividends aren’t well covered by expected earnings for this financial year (to April 2024). Dividend cover sits at 1.4 times, some way below the safety watermark of 2 times.
But on balance I think there’s a good chance of FRP meeting current dividend forecasts. And particularly given its recent history of producing better-than-expected earnings.
For this financial year the firm carries a healthy 4% dividend yield.
Grainger
Build-to-rent specialist Grainger (LSE:GRI) is another attractive safe-haven stock to buy in these difficult times, I feel.
Property stocks like this can usually raise rents in line with inflation in an effective manner. This in turn protects profits from the scourge of high inflation.
Residential property businesses like this can also expect rent rolls to remain stable during downturns. We all need somewhere to live, after all. In fact latest financials showed record occupancy of 98.7% in the financial year to date. It also showed like-for-like rents up 7.1% over the period.
This is why City analysts expect dividends at Grainger to rise strongly over the next few years at least. Consequently the FTSE 250 company carries a solid 2.8% dividend yield for this year (to September 2023).
Like FRP Advisory, dividend cover isn’t ideal. It also comes in at just 1.4 times. But the defensive nature of its operations mean it should still be in good shape to make that predicted payout.
I’d buy Grainger shares even though high costs and labour shortages could weigh on profits growth.
