Inflation, inflation, inflation! There seems to be a lot of news about it these days – and few of the headlines are positive. That is one reason I have been looking for income shares to buy. Hopefully chunky dividends could help protect against the threat of inflation eating into the real value of my savings.
Here are two income shares I would buy for my portfolio now. With £300 to invest, I would happily put £150 into each of them.
Direct Line
The insurer Direct Line (LSE: DLG) needs little introduction – which is part of its strength in my view. The company’s iconic advertising campaigns have made an impression on millions of people. That helps it to attract new customers as well as hang onto its existing ones.
Insurance is likely to stay in high demand for the foreseeable future. Most homeowners want to protect their property. For areas such as car insurance, customers may have to take out policies to drive on public roads – regardless of what happens to the economy.
Having the right underwriting discipline, focussing on high-volume business in well-proven areas like car insurance and using its famous brand are all part of the recipe for Direct Line’s business. The results are unremarkable: revenue and post-tax profits have been falling for three consecutive years. There could be more challenges ahead, as rules on policy renewal pricing may hurt profit margins.
But even with an unimpressive growth record lately, Direct Line has been able to turn in strong financial performance. Last year’s post-tax profits came in at £344m. If it plays to its strengths, I think the company could return to growth. These income shares yield 8.8%. That means investing £150 would hopefully earn me around £13 in annual dividend income.
Abrdn
I would also consider putting £150 into shares of investment manager Abrdn (LSE: ABDN), despite its silly name. With its yield of 7.5%, that would hopefully earn me around £11 a year in dividends.
The company has turned a corner in my view. Last year, revenues began to grow again and were 10% higher than the previous year. Post-tax profits also moved up handily, by 17%. Can such growth continue? I see a risk that the inflationary environment will make investors pay closer attention to their returns, which could lead them to switch to other providers if they are not happy with performance. That could also work to Abrdn’s advantage, however, if its investment managers do well.
I have bought Abrdn shares for my own portfolio this year and would consider buying more.
Income shares amid inflation
What I like about these two shares as a way to help protect my portfolio against inflation is that they have well-established businesses I reckon can continue to do well even amid an economic downturn. That could help them maintain their dividends.
Dividends are never guaranteed, but if the firms keep paying out at the current level, putting £300 into them today could bring me almost £25 in passive income each year.