Income stocks form the basis on my portfolio. But with inflation pushing 10%, I need bigger dividend yields to help my portfolio keep up.
But we also appear to be entering a period of stagflation, characterised by high inflation and slowing economic growth. This is even though the labour market is still running hot. It’s what I’ve seen called a ‘jobful downturn’.
So, I want stocks that can still perform well amid the current environment and provide me with sizeable yields.
Here are two stocks I’d buy now.
Centamin
Investors use gold as a safe haven when there are fears about inflation and the wider economy. So that’s why I’m looking at Centamin (LSE:CEY).
Most gold miners have done pretty well this year, but in April, Centamin reported a big fall in profits in 2021, hence the share price we see today.
The Jersey-registered miner said that full-year profits had halved on the back of forecast lower revenue and an impairment on assets in Burkina Faso.
But things are looking up. Gold prices have sustained this year, and they could go further if economic concerns grow.
The miner expects production to be between 430,000 ounces and 460,000 ounces. Centamin produced 415,370 ounces in 2021. In Q2 on 2022, gold production rose 11% year-on-year to 110,788 ounces.
Production costs are increasing and that’s a concern, but the company has recently transitioned to owner-operator mining in Sukari underground — Egypt’s largest gold mine. The transition should save the company around $19m a year from 2023 onwards.
Investments in expanding the Sukari mine should also help increase production in the years to come.
Centamin currently has an 8.6% dividend yield, which will help my portfolio fight back against inflation. Meanwhile, profits should increase if gold prices go up.
United Utilities
United Utilities (LSE:UU) is a defensive stock. It doesn’t offer a massive dividend at 4.4%, but it’s a reliable profit maker, because very few things are more essential than water. In fact, it is one of the ultimate defensive stocks.
This company provides water and wastewater services to Northwest England. And in return for providing an essential service, it’s allowed to make a reasonable profit on the water sold. The regulator, Ofwat, sets the prices. So revenue is somewhat pre-determined. After all, it’s in nobody’s interest for a company providing an essential service to be in trouble.
Debt is an issue here and servicing that debt could start eating away at profitability. But it doesn’t appear to be a big concern right now. United Utilities has a healthy balance sheet and more than £300m in free cash flow last year.
JP Morgan recently turned cautious on the water sector, but remained positive on United Utilities over its peers. JPM maintained its preference for overweight-rated United Utilities relative to competitor Severn Trent.
I think United Utilities looks like a good buy right now amid the forecast economic downturn. The group also said it would increase its dividend by the rate of inflation each year through to 2025.
