Dividend stocks are a core part of my portfolio. They provide me with passive income and require minimal effort on my part. But with inflation hitting 9.1% today — a 40-year high — I’m looking at dividend stocks that have big yields.
It’s certainly worth noting that sizeable dividend yields are not always sustainable. Sometimes it reflects the fact that investors aren’t too keen on the industry, such as tobacco. Equally, the dividend may have been raised after an excellent year, but long run performance isn’t expected to be as good.
The firms I’m looking at today have big yields, and I accept that they might be reduced eventually. However, I’m also positive on the long-run credentials of these stocks.
So here are three stocks I’ve bought, or am looking to buy, to negate the impact of inflation on my portfolio and help it grow.
Synthomer
Synthomer (LSE:SYNT) currently offers a huge dividend yield of 12.5%. The mega-dividend is being paid on the back of a stellar year for the latex glove manufacturer.
Synthomer registered pre-tax profits of £283m in 2021. That’s more than double any year before the pandemic. However, the stock is now trading below pre-pandemic levels despite analysts suggesting demand for its products remaining strong.
Barclays recently downgraded the stock, noting volatility in the market, but its target price is around 30% higher than the current trading price.
The firm recently took on a new CEO, so there could be some short-term issues as the company transitions.
Diversified Energy Company
The Diversified Energy Company (LSE:DEC) is a lesser-known big-dividend payer. At today’s price, the yield is 11.1%. That’s pretty huge.
The firm has been paying sizeable quarterly dividends and recently went ex-div. There’s a 4.25c one declared for September as well.
DEC is one of the world’s biggest owner of natural gas wells, with over 60,000 in its portfolio. Amid higher commodity prices, the company successfully increased production, reaching 136,000 barrels of oil equivalent per day.
It operates mature wells, so capping them will come at a cost. I’d assume this puts its break-even point a lot higher than its peers, and therefore makes it more susceptible to a fall in oil prices.
However, it’s also set to become a leading provider of well retirement services to third-party operators in the Appalachian States.
Rio Tinto
I’m finally looking at adding Rio Tinto (LSE:RIO) to my portfolio after the share price fell in recent weeks.
The company had been going from strength to strength in recent months on the back of soaring commodity prices. But negative economic forecasts and Chinese lockdowns have negatively impacted the share price.
A reported plan by the Chinese government to centralise iron ore procurement has also seen the share price fall. However, I think we’re entering a period of scarcity in which commodity prices will remain higher in the long run.
There are several reasons for this. An increase in infrastructure spending in the developing world will push up demand for iron ore and other metals used to make steel. Meanwhile, the EV revolution will increase demand for certain rare earth metals.
At today’s price, Rio Tinto has a whopping 11.3% dividend yield.