Last week, one top investment bank came out with the forecast that UK inflation could hit 18% early in 2023. That would be a headache for me in several ways, not least what it could do to the value of my spare cash. Although dividend shares aren’t a perfect remedy for offsetting inflation, they will help me more than if I did nothing! Here are some examples that I’m thinking about buying.
My game plan
There isn’t a big group of stocks that I could currently buy that would allow me to have an average dividend yield above 18%. I’m also not keen on putting all of my money on the top-yielding stock from either the FTSE 100 of FTSE 250. This is too risky in my opinion.
A nice blend would be to add a couple of high-yielding stocks to my portfolio, and supplement this with some lower-risk, lower-yielding ideas. This would hopefully get me a decent yield, without an excessive level of risk.
Even though I lock in the current dividend yield when I buy a stock, if the future dividend per share changes, so does my yield. So I do need to be careful when trying to forecast what income I could get in the future. I also need to be aware that even if I receive dividends, my total return takes into account the profit/loss from the share price. This will impact my overall performance.
High-yielder ideas
To pull my average yield up, I’d include Ashmore Group (8.49% yield) and Liontrust Asset Management (7.92%). Both companies are professional investment managers. Ashmore focuses more on emerging markets, while Liontrust has funds covering a range of different areas.
The attractive yields are in part down to short-term share price corrections. This is partly due to both companies reporting a decline in assets under management (AUM). Ultimately, the less money that’s being managed, the lower the fees the business will pick up.
However, I think these dividend shares are good options for the next year or so when navigating the stock market is going to be difficult. The desire to hand money to professionals could increase among the retail crowd, and larger players such as pension funds have a constant need to be investing.
Sustainable dividend shares
Even though I call the next couple of stocks lower-yielders, they’re both above the FTSE 100 average. I’m referring to Lloyds Banking Group (4.88%) and Kingfisher (5.28%).
I recently wrote about why I think Lloyds is back as a sustainable dividend payer. It has been increasing the payout since the regulator lifted the restrictions on the banking sector paying out income. By my estimates, it should be back up to pre-pandemic dividend per share levels by the end of next year.
Kingfisher operates DIY brands that I think will do well even during a UK economic downturn. A bounce in customer demand as people cut back on paying others to do jobs around the house would help the business to maintain dividend payments. That said, continued cost inflation is a risk for Kingfisher and is something I’ll be careful to keep an eye on.