It appears that the UK is at risk of falling into recession amid the biggest squeeze on household incomes in decades. To protect my portfolio, I want to own several dividend shares. The dividend income they provide should buffer against any further stock market weakness this year.
But it’s not just a temporary measure. I think owning some dividend shares for the long term will complement my growth shares. That’s because dividend-paying companies tend to be more established, mature, and less volatile.
It’s not always the case, but let’s consider some defensive dividend shares that I’d buy this month for my Stocks and Shares ISA.
Smoking hot dividend shares
First, I’d consider Imperial Brands (LSE:IMB). The company’s current dividend yield of 8.5% is one of the highest in the FTSE 100. It also comfortably covers the current UK inflation rate, which is around 7%.
Imperial is a company that has been around for many years. It owns many strong brands that have stood the test of time. But are times changing? It could be argued that public attitudes to smoking are shifting. This is certainly a risk.
But it’s one that Imperial are acutely aware of. In fact, it’s currently one year into a five-year strategy to build a stronger business by leveraging its brands.
In addition to its market-leading yield, I like that the products that it sells are defensive. That should help protect its earnings in an economic downturn.
Looking to the future, its next generation products (NGP), like vaping, offer growth potential. But it’s early days, and there is significant competition in this space.
But overall, the most appealing factors for Imperial shares are high cash generation and its leading dividend yield. As a solid dividend-payer, it has been paying cash to shareholders consistently for over 25 years. That’s impressive.
All things considered, I’d be happy adding these shares to my ISA this month.
Buying wind
Next, I’d consider electricity provider SSE (LSE:SSE). With a dividend yield of 4.5%, it’s not as high as Imperial Brands. But I reckon it’s still a solid and stable option in the current climate.
SSE is a well-managed utility business that offers substantial double-digit profit margins. It focuses on renewable electricity and recently made a multi-billion-pound investment to advance its net zero plans. Managers at SSE said that this makes it the largest contractor of offshore wind in the world.
Higher energy costs in recent years have supported SSE profits. And it looks like investors have started to take notice. SSE shares have risen by 14% so far this year. That far outperforms the 3% gained by the FTSE 100.
I think SSE shares will continue to perform well this year. It’s a defensive business that isn’t reliant on consumer finances. That’s a big advantage at a time when UK consumers are expected to face rising costs.
There is a risk if energy customers face difficulties in paying bills, it could give way to political or regulatory intervention that could affect SSE.
But overall, I think these dividend shares deserve a spot in my ISA this month. I’d definitely consider buying them.