I’m regularly on the hunt for stocks offering passive income in the form of dividend payments. This is particularly true right now with inflation reaching a multi-decade high of 6.2% in February as food, fuel and energy prices surged. Inflation is even forecast to reach as high as 8% during the year.
It’s not easy to find stocks that offer dividend payments comparable to or in excess of the current rate of inflation, and even when I do, it will pay me to be cautious. Some companies offer attractive dividends to entice investors but don’t have a healthy dividend coverage ratio — a measure of a firm’s ability to pay dividend from its profits.
My inflation-busting stocks
For me, housebuilders are a good place to look for stocks offering attractive dividend yields, healthy coverage and upside potential. The sector, which has performed well over the past year, is awash with firms providing dividend yields in excess of 4%.
Should you invest £1,000 in Crest Nicholson right now?
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The two companies I’ve chosen are Vistry Group (LSE: VTY) and Crest Nicholson (LSE: CRST). Both companies are down nearly 2% today and down substantially over the year despite performing well in 2021.
Vistry Group
Vistry Group is down more than 20% over the past six months and 11% over the year. However, the ailing share price belies some positive performance data.
Following a tough year for all housebuilders in 2020, Vistry Group reported “excellent progress” in 2021, noting strong demand across all areas of the business. Completions rose 23.7% to 11,080 as the FTSE 250 firm reported a 32% year-on-year jump in revenues to £2.69bn.
In 2021, Vistry posted pre-tax profits of £319.5m. The figure is exceeds pre-pandemic profits by some distance and the company claimed it was confident of improved performance in 2022, highlighting a “very strong” forward sales position.
While there’s certainly room for the share price to grow, I’m interested in Vistry because it offers a 6.3% dividend yield. Over the past three years, the firm has maintained a dividend coverage ratio above two, suggesting it’s in a strong position to maintain its payments.
Crest Nicholson
London-headquartered Crest-Nicholson struggled in recent years but took positive steps in 2021, posting a pre-tax profit of £86.9m. The figure represents a considerable swing from 2020, when Crest registered a loss of 13.5m.
Today, it’s trading at around 270p a share. That’s considerably down from five years ago when the company’s share price exceeded £6. The share price has continued to fall in recent months despite the positive performance data. That has been amid general concerns of the impact of interest rate rises on demand for new homes and inflation.
In a January statement, Crest suggested it was confident of continued progress in 2022, noting that 63% of revenue for the 2022 financial year was already covered.
For me, both these firms look like a good buy in the current climate. I already hold Crest Nicholson and will be receiving a healthy dividend from its in early April. I’ll also be looking to add Vistry to my portfolio.
