With inflation hitting 7% in March, its seemed like a good idea to look at inflation-beating stocks that can help my portfolio generate income. Today I’m looking at Rio Tinto (LSE:RIO) and Phoenix Group (LSE:PHNX). If I buy into these companies today, I can expect an annual yield of 9.4% and 7.9%, respectively. This is certainly in excess of current and probably future inflation levels in the UK. But are these two stocks worth adding to my portfolio?
Rio Tinto
Rio Tinto has operations in the exploration, mining, and processing of mineral resources worldwide. The company has a broad portfolio of mining operations. Among others, it mines and processes aluminium, copper, iron ore, and minerals such as titanium dioxide, diamonds, and borates.
This FTSE 100 mining giant has gone from strength to strength this year on the back of soaring commodity prices. Despite the considerable rise in the Rio Tinto share price, if I were to buy in today, I could still expect a 9.4% dividend yield. That’s one of the biggest yields on the FTSE 100, surpassed only by housebuilder Persimmon.
In fact, according to broker AJ Bell, Rio Tinto is expected to be the index’s single biggest dividend payer in 2022, paying out £7.4bn. While Persimmon will be the highest-yielding stock at 11.2%. AJ Bell said it expected the average dividend yield to be around 4.1% in 2022.
Rio Tinto’s strong dividend yield is backed up by impressive performance data. In 2021, the firm reported underlying earnings of $21.4bn. The figure is $8.9bn higher than in 2020.
In 2021, the London-headquartered firm had a dividend coverage ratio of 1.67. This certainly could be healthier, but I still think this stock is a good pick for my portfolio.
Phoenix Group
Life insurance specialist Phoenix Group owns household names like Standard Life and ReAssure. The former was bought from Abrdn last year.
If I were to buy in now, I could expect a dividend yield of 7.9%. Once again, that’s one of the highest on the index. What’s more, the payments are unlikely to decrease any time soon as the dividend was only upped in March. The blue-chip insurer said that it had decided to increase its dividend after annual cash generation exceeded expectations.
The group said cash generation for the year to 31 December 2021 was £1.72bn, marginally higher than 2020’s £1.71bn. The 2022 figure was well above internal targets of between £1.5bn and £1.6bn.
The company buys up legacy life insurance and pension funds that are closed to new business and manages them. Acquisitions allow the firm to grow, while stripping costs of newly acquired businesses have kept them lean. It might not be a high-growth stock but it’s a dividend machine that can help my portfolio negate the impact of inflation. Regulatory changes could also impact future operations, but, for me, this risk is worth the 7.9% dividend yield.
Despite the record year, Phoenix Group is trading at a 15% discount versus this time last year. I’m looking to add this stock to my portfolio soon.
