Unilever (LSE:ULVR) and NatWest (LSE:NWG) are two of my top passive income picks to help my portfolio overcome inflationary pressure. Inflation hit 6.2% in February and is forecast to remain at this level throughout the year. As such, it’s important that my portfolio is working to deliver revenue that can help me negate the impact of inflation.
While these FTSE 100 stocks offer dividend yields greater than the index average, they’re both trading at a discount. That’s why I think they’re a good buy right now.
Unilever
If I were to buy more Unilever shares today, I could expect a 4.15% dividend yield. I appreciate its not world-beating but I think that’s a good return for a blue-chip stock with plenty of upside potential.
The fast-moving consumer goods company has maintained stable dividend payments in recent history, although dividend coverage could be higher. In 2021, dividend coverage was 1.51. A ratio above two would certainly be healthier. Despite this, Unilever has continued to grow its dividend in recent years.
In 2017, the total dividend for the year was €1.51. By 2021 that figure had risen to €1.76. It’s worth noting that Unilever reports its financial figures in euros while the share price is measured in pounds.
Nevertheless, there are certainly challenges for this FTSE 100 stock. Inflation is chief among them, forcing the firm to increase retail prices. Personally, I am confident in the company’s ability to pass on increasing costs to customers due to the strength of its brands.
The London-headquartered firm posted its “fastest underlying sales growth for nine years” in February’s full-year report. Unilever said that sales grew by 4.5% compared to the previous year.
I recently bought Unilever and will be buying more. It’s currently trading at a 15% discount compared to this time last year and I’m confident the share price will recover.
NatWest
This FTSE 100 banking giant currently offers a 4.8% dividend yield. In 2021 the dividend coverage ratio was a healthy 2.19. The ratio is a big positive, suggesting that the dividend is sustainable for the group, which also includes the Royal Bank of Scotland.
Recent data was also positive. In February, the bank reported an operating pre-tax profit of £4bn for the year 2021. The figure was an impressive turnaround from the operating pre-tax loss of £481m in 2020. The group is now targeting an income of more than £11bn in 2022.
Like any company, there are risks for the banking giant. The company has a lot of personal and business customers. When the economy is strong, this will likely be reflected in the bank’s performance. But poor economic performance is likely to hurt profits.
Beyond the dividend, I think there’s room for the share price to grow further. The share price currently sits at 215p, which is 12% down on its price prior to Russia’s invasion of Ukraine.
I think NatWest is a good buy for my portfolio. I recently bought it for my Stocks and Shares ISA.