2 cheap dividend stocks I’d buy to combat runaway inflation

There are many ways UK share investors can defend themselves as inflation rises. Here are two dividend stocks I’d buy to protect my wealth.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Inflation’s going through the roof at the moment. Labour shortages are pushing up wages, rising raw material prices are increasing manufacturer costs, and supply chain disruptions are causing swathes of empty store shelves.

Fortunately, there are ways UK share investors can protect themselves against runaway inflation, such as by buying big-yielding dividend stocks.

Consumer price inflation (CPI) recently struck nine-year highs of 3.2%. On Thursday, the Bank of England suggested that inflation could rise above 4% in the months ahead too, and stay around those levels until the second half of 2022.

Thankfully, there’s a broad range of great dividend-paying stocks whose yields surpass even that eye-watering 4% figure. The income provided by these UK shares is allowing me to effectively increase the value of my wealth, even as CPI is booming.

2 dividend stocks on my radar

Fortunately, I already own a range of UK shares that offer inflation-busting yields. But I’m looking to bulk up my holdings of big-dividend-paying stocks, given the current inflationary boom. Here are two more I’m considering buying for my investment portfolio.

1) Gold star

Gold miner Centamin (LSE: CNY) is one of the best dividend stocks to buy to shield from rampant inflation. Firstly, precious metals tend to rise in price in an ultra-inflationary environment as the value of paper currencies comes into question and investors seek refuge in traditional ‘harder’ currencies. So, in my opinion, the profits outlook for this UK mining share looks pretty tasty.

Secondly, Centamin’s dividend yield currently sits at a staggering 7.4%, well above today’s rate of inflation. Of course, there’s a danger the company won’t be able to effectively capitalise on this encouraging price environment. Mining for metals is notoriously complex and production can grind to a halt for a variety of reasons. In my opinion though, this danger’s baked into Centamin’s low valuation. It trades on a forward price-to-earnings (P/E) ratio of just 10 times today.

2) A FTSE 100 cash machine

FTSE 100 stock Aviva (LSE: AV) is also on my radar as inflation soars. This life insurance colossus carries a glorious 5.5% dividend yield for 2020. I’m also attracted by this dividend stock’s rock-bottom forward P/E ratio of 9 times.

I like Aviva because it has mountains of cash on its balance sheet. Its Solvency II shareholder cover ratio remains above 200%, comfortably above regulatory requirements. And it has pledged to share its considerable capital with investors over the next year. Last month, it launched a £750m share buyback programme as part of a broader drive to return £4bn worth of capital to shareholders by mid-2022.

You might be wondering why the Aviva share price is so cheap. The business has undergone significant restructuring in recent years and has divested almost all of its overseas divisions. This has raised fears that the insurer might struggle to generate profits in the future.

While this is a risk, Aviva’s position as a leader in its remaining markets should still help it deliver great returns now, and in the years ahead.

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.

Royston Wild 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »