With the cost of living rising rapidly, I have been looking for inflation-busting dividend shares to add to my portfolio. I think all of the companies listed below, which offer dividend yields of 7% or more, can help protect me against the ravages of rising prices.
Unfortunately, this dividend income is not guaranteed. There will always be a risk that rising prices could impact company profit margins, which could ultimately lead to dividend cuts. Despite this headwind, I reckon these businesses have the potential to provide attractive returns for my portfolio.
Inflation-busting
The first firm on my list is the mining giant Rio Tinto (LSE: RIO). With a prospective dividend yield of more than 8% for the year ahead, I think the company looks incredibly attractive as an income investment.
What’s more, commodity prices tend to rise in line with inflation (although this is not guaranteed as commodity prices can be incredibly volatile).
As a result, I think the corporation’s profits should remain relatively robust, even in an inflationary environment. It might have to deal with some increasing costs, but rising sales may help reduce the overall impact.
On top of these factors, the company also has a cash-rich balance sheet with no debt. These qualities are highly desirable in any income investment.
High-quality dividend shares
Elsewhere, I would also buy FTSE 100 dividend giants British American Tobacco (LSE: BATS) and Phoenix Group (LSE: PHNX). Both of these companies currently support dividend yields of more than 7%, and they have plenty of other attractive qualities as well.
Phoenix manages books of pension and life insurance policies, which are very predictable long-term assets. The group has also been acquiring other businesses to increase assets under management and reduce costs. I think these advantages should help it navigate the current uncertain economic environment.
A major risk the corporation could have to deal with is volatility in its investment portfolio. Phoenix’s management should have baked this risk into their projections, but it is something I will have to be aware of as well.
British American has a long track record of increasing the prices of its tobacco products in line with inflation. Of course, there is no guarantee that the company will maintain this track record. If prices rise too far, too fast, consumers may start avoiding the products. This is something I will be keeping an eye on as we advance.
Nevertheless, I think the group also has the scope to cut costs. This could offset any inflation driven increase in wages or operating expenses.
British American, Phoenix and Rio Tinto are not immune to the inflation pressures that are hitting the rest of the global economy. However, I believe these dividend shares are better prepared to ride out the current economic environment than many of their peers.
This is why I would acquire all three for my portfolio today.
