I own a fair number of dividend shares. I see them as a smart way to hedge my money against inflation. I plan to reinvest the passive income I earn into my nest egg and watch my pot grow.
This is a method I’ve used in 2023. I plan to continue doing it going forward. If I had a spare £500 today, I’d strongly consider buying these two shares.
Financial services giant
I already own shares in FTSE 100 stalwart Legal & General (LSE: LGEN). But if I had some spare cash, I’d happily top up my position in the iconic business.
One of the reasons I’m bullish on the company is its due to its strong brand recognition. The business has been around for nearly 200 years and survived multiple crises. With further market volatility expected in 2024, it’s companies like Legal & General that I want in my portfolio.
Alongside that, it offers a mouthwatering dividend yield of 8%. There are only five companies on the Footsie that pay out more.
Its dividend has also seen steady growth in the last decade, which is always a positive sign. Dividends are never guaranteed. We saw this during the pandemic when companies reduced or cut their dividend altogether. Yet with its dividend covered two times by earnings, I’m fairly confident of receiving a payment.
What I also like about the firm is the emphasis it’s placed on growing its dividend. Next year marks the end of a strategic plan that’ll see it return nearly £6bn to shareholders.
Its assets under management (AUM) have taken a hit recently. That’s expected given the economic environment. Many investors have pulled their money to keep some spare cash nearby. I’d expect this to continue in the months ahead.
However, as inflation continues to fall, its AUM should pick up again. And with a price-to-earnings (P/E) ratio of seven, now looks like a smart time to pick up some shares.
Life insurer stalwart
I’d also look to Aviva (LSE: AV). Today its shares yield 7.4%. That’s slightly lower than Legal & General. But it’s considerably above the Footsie average of 4%.
On top of that, analysts predict that its yield will grow in the years ahead. Some even expect it to reach 8.8% by 2025.
I also like Aviva because it’s well placed to capitalise on an ageing population. The number of elderly citizens is growing in countries such as the UK. More widely, by 2030, one in six people in the world will be 60 years or over. With that, demand for retirement and wealth products is likely to rise.
Aviva shares also look fairly priced, with a forward P/E ratio just north of 11. That’s below the FTSE 100 average.
Persistent inflation and high interest rates could act as a deterrent for new business. Consumers tightening their belts as spending power remains under pressure could dent revenues.
However, I buy for the long run. And I like the look of Aviva. If I had a spare £500, these are two shares I’d look to first.
