Though savings rates have been rising this year, they still look fairly modest to me. Top easy-access UK savings accounts pay interest of around 1.8% a year before tax. Meanwhile, soaring inflation — the rising cost of living — is eroding the value of my cash by 9.4% a year. Ouch. That’s why I’ve been adding extra income to my family portfolio by buying more dividend shares. For example, here are two high-yielding stocks that I currently own, but would gladly buy again for their market-beating cash yields.
Dividend share #1: Aviva
Aviva (LSE: AV) is the UK’s largest general insurer, as well as being a major player in the life and pensions market. Its former household-name brands include Commercial Union, General Accident, and Norwich Union.
Having worked in this sector for 15 years, I know Aviva and its business model well. However, Aviva shares have been hammered in 2022, following regulatory changes to insurance quotes, plus rising claims costs. Here’s how this stock has performed over six time scales:
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| Five days | 13.4% |
| One month | 17.3% |
| Six months | -19.3% |
| 2022 YTD | -13.9% |
| One year | -15.9% |
| Five years | -32.3% |
As recently as 29 March, Aviva stock peaked at 606.58p. As I write, it stands at 464.8p — almost a quarter (-23.4%) below this 52-week high. This dividend share leapt last week, after it reported first-half results well ahead of market expectations. Nevertheless, Aviva stock has lost nearly a third of its value over the past half-decade.
Recently, my wife bought Aviva shares at 397p each. They have since climbed over 17%. But even after this recent rebound, this share still offers a dividend yield nearing 6.4% a year. This is around 1.6 times the FTSE 100‘s cash yield. This strikes me as a decent reward for the risk of owning a stock that has been largely stagnant for a number of years.
Income stock #2: Royal Mail
The second of my two high-yielding shares is Royal Mail (LSE: RMG), the well-known provider of our universal postal service. The group’s origins go back to 1516 and King Henry VIII, but its modern incarnation is made up of two distinct businesses.
One — the UK postal service — is currently beset by strikes and industrial action over pay demands, plus rapidly reversing profits. Meanwhile, the other — Amsterdam-based GLS — is a highly profitable global parcels service. But Royal Mail’s recent troubles have sent its shares tumbling, as shown below:
| Five days | -2.6% |
| One month | -2.1% |
| Six months | -38.5% |
| 2022 YTD | -46.8% |
| One year | -46.4% |
| Five years | -31.3% |
During these recent price falls, my wife bought this cheap stock at 273.2p for its generous dividend yield. It now trades at 269.3p, roughly 4p below our buying price. But this leaves Royal Mail shares with a higher dividend yield of 6.2% a year. Also, this payout is covered almost 3.7 times by company earnings, which seems like a decent margin of safety for me.
There could be trouble ahead
However, risks are rising right now for UK shareholders. For example, interest rates are rising to cool down red-hot inflation, borrowing costs are going up (notably for home loans), energy bills are at crisis levels, and war rages on in Ukraine. Even so, I’d happily buy these dividend shares for their decent cash yields and long-term prospects!
