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Forget a cash ISA! I’m considering these 2 big dividend stocks to protect my pension from inflation

The one thing you surely need from your retirement plans is to at least protect your savings from inflation. Well, even with UK inflation down a fraction to 2.4%, cash ISA interest of around 1.4% and less doesn’t look like it will do that for you. “Invest in a cash ISA and lose money” is hardly an irresistible advertising slogan.

Getting a stocks & shares ISA instead and using it to invest in stocks that pay decent dividends is, in my view, a far better option, and there are two in the news that I reckon warrant a closer look.

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Faster than inflation

Not only has transport operator National Express Group (LSE: NEX) been paying attractive dividends for years, its annual rises have been coming in way ahead of inflation too.

Current forecasts suggest the dividend this year will have grown by 49% since 2013, and added to a five-year share price rise of 52%, that’s an impressive performance. The 2018 yield is forecast at 3.9%, with 2019 forecasts suggesting 4.2%. Those who bought five years ago would effectively be getting around 5.7% and 6.2% respectively on their purchase price.

As long as that continues, shareholders would be seeing their income growing in real terms every year — and if you invest your growing dividends in new shares, you could accelerate that.

Thursday’s Q3 update suggests everything is going just fine, with revenue up 9.5% (8.9% in constant currency terms) and pre-tax profit up 18.3%. The company says its margins are up year-on-year too, and that it expects the current momentum to carry on over the medium term.

As far as the outlook goes, chief executive Dean Finch said the firm’s “continued focus on cashflow and operational performance should allow us to continue to grow profit in the years ahead.” It looks like a fairly safe one to me.

Shares too cheap?

Another that’s caught my attention is the forecast 4.9% dividend yield from Rank Group (LSE: RNK), the owner of Mecca Bingo and Grosvenor Casinos. If analysts are right, the dividend will have risen by 80% in five years, which is really hammering inflation.

But seeing that a recent share price slump has contributed to the yield growing from 2.7% in 2013 to that predicted 4.9%, I’m a lot more cautious. Although Rank shares are marginally ahead of the FTSE 100 over five years, we’ve seen a 45% fall since the end of 2015, and the reason seems clear.

With the rise of online gambling and its ease of play, the demand for bricks and mortar gaming establishments is diminishing — and Thursday’s update only reinforced that.

Like-for-like revenue for the 16 weeks to 14 October fell by 4.9%, with revenue from the firm’s venues dropping by 6.1%. Growth in digital revenue of 1.7% helped to offset that a little, but considering how fast some of Rank’s online competitors are growing, I don’t find that too impressive.

Rank is in a transformation programme at the moment, and the early days of a period when a company is undergoing a refocusing of its operations is not the ideal time to seek reliable progressive dividends. At least that’s my opinion, based on having seen so many companies in similar situations in the past having to control costs by cutting their dividends. I’d give this one a miss.

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Alan Oscroft 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.