With inflation forecast to hit 18% next year, I think income shares are looking particularly attractive for my portfolio. Sure, very few companies will pay out enough cash to totally offset the impact of rising prices. But every little helps, especially when this money can be used to buy more stock while markets are in a strop.
Here are two companies whose track records suggest to me that 1) they should continue to pay out great income through this economic storm and 2) continue growing payouts afterwards.
Screamingly cheap
As I type, housebuilder Vistry (LSE: VTY) — formerly known as Bovis Homes — has a forecast dividend yield of 9.4%. That makes it one of the biggest payers in the FTSE 250. For comparison, the index returns just under 3% as a whole.
But there’s more to like here, in my opinion. Vistry has also got a great record of increasing the annual dividends it pays out to shareholders. That’s indicative of a healthy, well-run business and the sort that I’d want to own in my portfolio.
Is it dangerous to buy a builder during recessionary times? Well, the sector is undeniably cyclical. And there are certainly signs that the housing market is starting to flag. The Royal Institution of Chartered Surveyors recently said that fewer of us are looking for a home and that this is starting to impact prices.
Having said this, Vistry stock can now be bought near its all-time low in terms of valuation. A price-to-earnings (P/E) ratio of just five seems very cheap considering the business reported exceeding its own expectations on trading over the first half of 2022. No wonder it’s been buying back its own shares recently.
Is the risk worth the reward here? I think it might be, although I wouldn’t hesitate to diversify my portfolio just in case.
Monster income share
Another company on my list of possible income shares to buy is British American Tobacco (LSE: BATS).
Like Vistry, the FTSE 100 giant offers a compelling dividend stream. As things stand, owning the stock will entitle me to a yield of 6.7%. That’s clearly not as generous as the aforementioned housebuilder but it’s enough to mildly soothe the pain of higher prices.
Again, like Vistry, BATS has a great (albeit not faultless) record when it comes to hiking its payments. Part of this is due to the consistency of earnings. The addictive nature of its products means the company can be fairly sure about how many packs of cigarettes it will sell every year, at least compared to other consumer stocks.
Obviously, no dividend stream can be guaranteed. One also needs to consider that the use of tobacco is in long-term decline and the sector is always vulnerable to interference from regulators.
Although I’m very much focused on growing my wealth over the long term, I’m conscious that British American Tobacco’s share price is already up 25% in 2022 as well. I wonder if we might see some profit-taking when confidence improves and glitzy growth stocks become popular again.
Then again, the stock still trades on a valuation of 9 times forecast earnings. So, even if momentum does slow in the months ahead, I struggle to believe that British American Tobacco’s share price is about to crash.