2 dividend stocks ideal for beating inflation

These two shares could help you to overcome the inflation that’s increasingly eroding dividend yields.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

One of the biggest risks currently facing investors is inflation. Since the EU referendum it has increased and now stands at around 3%. Looking ahead, there’s the potential for a further rise as Brexit moves closer. Therefore, buying companies which are capable of delivering a relatively high and growing dividend could be a shrewd move.

With that in mind, here are two stocks that appear to offer impressive income outlooks. They could also help you to overcome that threat of inflation.

Challenging period

Reporting on Tuesday was international convenience food company Greencore (LSE: GNC). Its share price dropped 25% after downgrading its outlook for the 2018 financial year. The business has experienced weak performance in its underutilised original sites in the US the first half of the current year. Alongside the timing of new business contributions and unfavourable exchange rates, this means that adjusted earnings per share is expected to be between 14.7p-15.7p, versus previous expectations of 15.7p-16.6p.

Clearly, the company’s profit warning is disappointing. However, its core UK and US operations continue to perform as per expectations. Therefore, it would be unsurprising if there’s a recovery over the medium term. That’s especially the case since the business appears to have a strong position within its key markets.

With Greencore’s dividend yield being around 4%, it offers a real income return right now. Its dividends were covered almost three times by profit last year and this suggests they remain highly sustainable at the present time. Therefore, while considered a more volatile share than many income investors would normally buy, the company could provide a high return in the long run.

Consistent performance

Also offering an inflation-beating outlook is housebuilder Barratt (LSE: BDEV). The company has enjoyed a period of strong growth in recent years and this looks set to continue. Government support for the housing market remains strong via the Help to Buy scheme in particular. This could lead to a continuation of the ‘purple patch’ housebuilders have enjoyed in recent years.

Improving financial performance could allow Barratt to deliver a rising dividend. The company currently has a dividend yield of around 7%, which is covered 1.5 times by profit. This suggests that not only could it offer an income return above and beyond inflation, it may provide dividend growth also ahead of even a fast-rising price level.

With Barratt due to report a rise in its bottom line of 6% this year and 5% next year, the company appears to have a positive outlook. Since it trades on a price-to-earnings (P/E) ratio of around 8.5, it appears to offer good value for the long term. And while the prospects for the UK economy remain uncertain, an imbalance between demand and supply in the housing market could lead to a prosperous future for housebuilders… and shareholders.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares in Barratt. The Motley Fool UK owns shares of and has recommended Greencore. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

Just released: our top 3 small-cap stocks to consider buying in October [PREMIUM PICKS]

Small-cap shares tend to be more volatile than larger companies, so we suggest investors should look to build up a…

Read more »

Investing Articles

How I’d use an empty Stocks and Shares ISA to aim for a £1,000 monthly passive income

Here's how using a Stocks and Shares ISA really could help those of us who plan to invest for an…

Read more »

Investing Articles

This FTSE stock is up 20% and set for its best day ever! Time to buy?

This Fool takes a look at the half-year results from Burberry (LON:BRBY) to see if the struggling FTSE stock might…

Read more »

Investing Articles

This latest FTSE 100 dip could be an unmissable opportunity to pick up cut-price stocks

The FTSE 100 has pulled back with the government’s policy choices creating some negative sentiment. But this gives us a…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

As the WH Smith share price falls 4% on annual results, is it still worth considering?

WH Smith took a hit after this morning’s results left shareholders unimpressed. With the share price down 4%, Mark Hartley…

Read more »

Investing Articles

The Aviva share price just jumped 4.5% but still yields 7.02%! Time to buy?

A positive set of results has put fresh life into the Aviva share price. Harvey Jones says it offers bags…

Read more »

Investing Articles

Can a €500m buyback kickstart the Vodafone share price?

The Vodafone share price has been a loser for investors in recent years, and the dividend has been cut. We…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Growth Shares

3 mistakes I now avoid when choosing which growth stocks to buy

Jon Smith runs through some of the lessons he's learnt the hard way over the years about what to look…

Read more »