The current record levels of inflation have driven a move towards passive income stocks over growth stocks. There are a number of reasons for this, including higher interest rates that can make companies reconsider their growth strategies and even put plans on hold due to higher borrowing costs.
Passive income from dividend stocks forms a core part of my own strategy. Right now, I’m looking for shares that will help me reduce or even negate the impact of inflation on my portfolio. So, here are four dividend-paying stocks I’m considering buying.
Rio Tinto
Mining giant Rio Tinto is down 13% over the past week. Last week, the company announced that iron ore shipments were lower than expected in Q1 and highlighted geopolitical risks to its business, including Chinese lockdowns and Russia’s ongoing war in Ukraine. This was followed by a Berenberg downgrade. However, if I buy today, I could expect an inflation-beating 10.75% dividend yield. Rio Tinto is actually expected to be the index’s single biggest dividend payer in 2022, paying out £7.4bn, according to broker AJ Bell.
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Prolonged Chinese lockdowns will likely weigh on mining stocks in the coming weeks and possibly months. This is definitely a risk I’m looking closely at before buying in.
Direct Line
Direct Line is currently trading around its lowest levels over the past three years. The firm has been on a downward trend in terms of its share price and profit data in recent years. However, I’m confident about the long-term profitability of the business and its sector. It’s also a very recognisable brand with its red telephone logo. Recent performance hasn’t been the best, which is a risk, but £343m in post-tax profits in 2021 led the board to increase its dividend. Buying today, I can expect an 8.8% dividend yield.
Imperial Brands
The tobacco industry is controversial. And that’s why so many investors steer clear of it. However, for those like me who are willing to invest, it can be very lucrative. Concern about the ethics of the industry is one of the reasons Imperial Brands looks cheap. The company has a price-to-earnings ratio of just over six. Imperial Brands has an impressive 8.5% dividend yield. That’s some way above the FTSE 100 average.
The firm posted an operating profit of £3.2bn last year, the best performance over the past five years. In April, Imperial said that it expected revenue and profit to be flat in the first half.
However, its worth remembering that government policy changes could severely impede the core tobacco business.
M&G
Investment manager M&G is another high-dividend-paying stock I’m considering for my portfolio. Buying today, I could expect a yield of 8.6%. Unlike tobacco, demand for financial services is likely to remain strong. M&G is an establish brand and the company’s management has said it hopes to maintain or grow the dividend in future. That’s definitely a positive as I’m looking to add this stock to my portfolio for its dividend. However, it’s certainly worth remembering that finance is a competitive industry and market share isn’t guaranteed.
