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3 High-Yielders To Combat Rising Inflation: Centrica PLC, National Grid plc And J Sainsbury plc

Despite mountains of quantitative easing and interest rates being at historic lows, the level of inflation fell to just 1.5% earlier this year. However, this week highlighted that a rate of inflation above the target rate of 2% is a distinct possibility as the rate of increase in the consumer price index rose to 1.9% in June. This, plus the fact that interest rates look set to remain below the 4-5% ‘normal’ level for a good few years, means that high-yielding stocks such as Centrica (LSE: CNA) , National Grid (LSE: NG) and J Sainsbury (LSE: SBRY) could be in demand. Here’s why.

Centrica

Political risk still remains for Centrica and is likely to make more of an impact on the company’s share price as we get closer to the general election in 2015. However, this could be viewed as a positive for long-term investors, as it affords them the opportunity to buy shares in a diversified company that offers a yield of 5.7%. This is among the highest yields on the FTSE 100 and, crucially, is three times the current rate of inflation. Certainly, shares look set to remain volatile but, with exploration accounting for one-third of Centrica’s business interests, the company could still be a strong performer in the long run.

National Grid

Political risk is not a major problem at National Grid, with the cost of updating the UK’s infrastructure being the major concern for investors right now. While National Grid does have strong cash flow and has lower balance sheet risk after a successful rights issue in 2010, the cost of replacing infrastructure that in many cases is over 50 years old is an expensive task. Therefore, further rights issues as well as a sale of US assets have been mooted in the past, with the company maintaining that dividends will not be cut. Although shares in the company have risen by 8% this year, they still yield an impressive 5.1%.

J Sainsbury

Despite being in the midst of one of the most challenging periods in living memory for UK supermarkets, J Sainsbury continues to be a strong contender for income-seeking investors. That’s because it yields 5.1% and, furthermore, dividends are comfortably covered by earnings since the company has a payout ratio of just 56%.

Certainly, J Sainsbury may fail to deliver bottom-line growth over the next couple of years, as the UK supermarket sector become increasingly competitive. However, the company could have pulled off a masterstroke by splitting its offering between a joint venture with Netto and the traditional, higher quality J Sainsbury offering. Doing so may allow it compete on two fronts and avoid the squeezed middle that it has been pulled into via price wars from competitors such as Tesco. Therefore, J Sainsbury could return to growth faster than its peers and, in the meantime, offers an inflation-busting yield, too.

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Peter Stephens owns shares in J Sainsbury, Tesco, Centrica and National Grid.