Inflation around the world is soaring. In April, the UK recorded inflation of 9%, while Belgium and the Netherlands have both recorded rates of over 10%. To help offset these inflationary pressures, dividend stocks have become even more popular for investors. In a quality dividend stock, I look for both high yields and sustainability. Here are two UK shares I feel possess both these qualities.
An energy company
High energy and gas prices have been a severe issue for many households and companies over the past couple of months. But energy companies offer an exception, as they have, in fact, benefited. SSE (LSE: SSE) is a good example, especially after releasing an excellent set of results.
For the year ending 31 March 2022, SSE managed to report adjusted profits before tax of over £1.5bn, 23% higher than the previous year. For the forthcoming year, the group also expects earnings to increase by another 25%.
These strong results have been accompanied by a strong dividend, which totals 85.7p per share. At the current SSE share price, this yields around 5%. Although this is not as large as other dividend stocks, this doesn’t bother me due to its sustainability. In fact, the total dividend totals less than £1bn, which is far less than the company’s current profits.
There are some risks with SSE, however. For example, the government is planning on introducing a windfall tax for energy companies, which would likely hit the group’s profits. With a price-to-earnings ratio of around 17, SSE is also no bargain in comparison to some other energy stocks. For example, Shell has a P/E ratio of just 10.
However, I still believe that SSE is a great buy. With the company heavily investing into renewable energy, I equally feel that it has a long-term future. This means that, for a great source of passive income, I may add some SSE shares to my portfolio.
A housebuilding dividend stock
Housebuilding companies have always offered strong dividends, yet after recent worries, they look more tempting than ever. For example, in the past year, Vistry (LSE: VTY) has sunk around 30%, yet the dividend has been raised in the same period.
The firm’s results have also been very robust. For example, in 2021, the group managed to record adjusted profits before tax of £346m, up from £143.9m the year before. This was aided by strong demand for housing, which saw house prices rise. These strong profits also enabled the company to pay a total dividend per share of 60p, equating to a very healthy yield of nearly 7%. With a dividend cover of two, it is also extremely sustainable.
The Vistry share price has still been struggling recently, however. Firstly, housebuilders have agreed to fix historic safety issues, and this is expected to cost around £3bn over the next 10 years. Vistry is likely to be affected by this. Further, house prices are widely expected to fall soon, especially considering the wider macroeconomic uncertainties.
However, I already own Vistry shares, and I am tempted to add more of this dividend stock to my portfolio. With a price-to-earnings ratio of only eight, it looks overly cheap.