Regardless, things are only going one way. By the end of the year, the base rate is expected to be above 4%. By July 2023, it could be as high as 5.5%.

Does all this mean I should aim to hold a bigger proportion of my wealth in cash? Not a bit of it.

The benefits of cash

Now, don’t get me wrong — there are a couple of very valid reasons for tucking some of my money away in the bank.

One of these is the idea of having an emergency fund for life’s little (or not-so-little) emergencies. Whether it’s a broken boiler, a car repair, or a temporary period of unemployment, having cash to cushion the blow makes perfect sense.

Even if I don’t need to use this cash, there’s something very comforting about knowing the balance of my account won’t change between going to bed one night and waking up the next day.

Given this, I would certainly make a point of seeking out the best rate I could get. Staying in an account where the interest rate isn’t competitive doesn’t make sense to me, especially as transferring over to a new provider doesn’t take much effort.

The silent killer

Beyond having an emergency fund, however, I don’t hold cash. The main reason for this has been one of the main talking points in 2022.

Right now, any money in the bank is being (rapidly) eroded by inflation. Just in case you weren’t aware, the latter hit 10.1% in September. In other words, I could have my money in the best instant-access saving account on the market (currently 2.5%) and it would still be losing a lot of value.

This is why the vast majority of my wealth is in stocks, including a few that generate truly passive income in the form of dividends. It’s these that are looking particularly attractive at the moment.

Why shares are my priority

Right now, there are many blue-chip companies yielding far more than the interest rates on offer from savings accounts. Insurer Legal & General is forecast to yield 8.4%. Telecommunications titan Vodafone offers 7.9%. Many UK housebuilders have double-digit dividend yields!

What’s more, holding everything in a Stocks and Shares ISA ensures I won’t pay any tax on this income or any profit I make if the bits of companies I own are worth more when I eventually sell.

Please note that tax treatment depends on the individual circumstances of each individual and may be subject to future change. The content of this article is provided for information purposes only. It is not intended to be, neither does is constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

No sure thing

Naturally, there are some ‘costs’ I always need to keep in mind as I continue to buy. As has been evident in 2022, stock prices can be volatile. Those dividends can’t be guaranteed either, particularly if a company goes through a sticky-patch trading-wise.

And this is precisely why I adopt a long-term mentality when it comes to investing. I’d much rather endure these things now and benefit from the brilliance of compounding later down the line.

I’ll be watching next month’s decision with interest. But moving my money to the perceived ‘safety’ of a cash savings account isn’t on my ‘to-do’ list.

For this reason, I have decided to look at the primary UK market, as the higher market capitalisations, combined with international exposure, may help to improve performance over the coming years and stabilise the share price in the short term. To find the right opportunities within this index, I have decided to filter the 100 shares by those trading near their lowest levels this year.

Poor share price performance

My filter identified Vodafone Group (LSE: VOD), the mobile and fixed-line network provider operating in the UK and EU. According to my index screener, the company hit its year-low share price in the last three days and is down 12% in 2022. Furthermore, it has been a tough few years for Vodafone, consistently generating negative share price returns over the last five years.

Underlying fundamentals

Despite this poor share price performance, the underlying fundamentals have some encouraging signs. Profit margins are strong and almost 50% above the three-year average. Free cash generation is impressive and has been at this elevated level for the last few years. The efficiency of returns generated from invested capital is low. However, it is above the three-year average again, so this is an encouraging sign.

Another encouraging sign is that Vodafone currently offers a dividend yield of 7.9%, which is forecast to reach 8% next year. Not only is this level considerably higher than the index average of 4.1%, but it has been paying this dividend for 30 years consistently. This is a very promising sign, as consistent dividend income could help to partially offset the poor share price performance over the last few years.

Potential issues

However, it is essential to note several less positive signs within Vodafone’s fundamentals. The company currently has a very high level of borrowing, with a debt-to-market capitalisation ratio of 215%. This is high in and of itself and has significantly increased from the 159% average level over the last three years.

In addition, earnings growth has slowed considerably, with turnover forecast to grow by just 0.5% in 2022. The three-year average has still only been 1.4%. Furthermore, earnings before interest and tax (EBIT) are forecast to decline by almost 11% next year, indicating that the share price underperformance may continue.

Therefore, I would not want to add Vodafone Group to my portfolio at this moment. Still, I would be keen to watch the company in 2023. The share price declines, combined with high dividend yield, could present a substantial opportunity, although monitoring underlying earnings and debt levels will be essential.

Here are two such dividend stocks I would consider buying for my retirement portfolio today, if I had spare money to invest.

Legal & General

The first is financial services firm Legal & General (LSE: LGEN), which I have recently added to my portfolio. I like the economic characteristics of the general insurance industry in which Legal & General operates.

Demand is likely to stay strong and claim payouts tend to be fairly predictable over time. That helps firms price their policies profitably. I think Legal & General has an advantage in the industry, thanks to its well-recognised brands. That enables it to attract customers.

The company does more than just insurance, with a wide range of investment products also offering a potential boost to its profit streams. There are risks in this business too. An economic slowdown could lead to less people investing, hurting profits.

But with the long-term perspective of investing for retirement, I remain upbeat about the outlook for L&G. With its annual dividend yield of 8.1%, the firm offers me substantial passive income streams.

Vodafone

Another of the dividend stocks I would consider adding to my retirement portfolio is telecoms giant Vodafone (LSE: VOD). The company now trades for pennies, meaning its yield has been pushed up to 7.7%.

That share price fall reflects some risks the company faces. Its large debt pile could act as an increasing drag on earnings as interest rates increase. The high capital expenditure requirements of its industry are also an ongoing risk to profitability at Vodafone.

But the company has a large installed base across a wide range of markets, especially Europe and Africa. It has a strong position in many markets and a well-established brand that can help it attract and retain customers. I expect demand for mobile telecom and data services to keep growing over time. I see Vodafone as well-placed to benefit financially from that.

I’d like to buy both

If I had spare cash to invest, I would happily buy both of these dividend stocks for my retirement portfolio today. They offer meaty dividends. But although dividends are never guaranteed, I am hopeful these strong businesses could help support the payouts over time.

Crucially, I also expect ongoing strong demand for the services of both firms. That could mean they keep ringing up sales and profits far into the future. Hopefully that could help support future dividends.

I think Vodafone shares have been overpriced in the past, and part of the recent fall has been a much-needed correction. But it looks overdone.

What do I most like about Vodafone? Its dividend yield, now pushed as high as 7.5%.

Record dividend year?

Some investors are getting twitchy about 2022 dividends, as inflation is putting the squeeze on consumer demand. But, according to AJ Bell‘s latest update, FTSE 100 dividends still look set to come very close to the record set in 2018 — and could even beat it.

Forecasts suggest a cash payout of £81.5bn in 2022, which I find quite remarkable against the current negative investing sentiment. And it reminds me again of how important it is for long-term investors to ignore short-term worries and keep on buying. Especially dividend shares.

Actually, to echo billionaire investor Warren Buffett’s call to be greedy when others are fearful, it looks to me like a great time to buy now. We should surely welcome market gloom, not fear it.

Dividend risk

Saying all that, there is some risk to Vodafone’s dividend. Forecasts have it covered only 1.0 times by earnings, with no room for safety there. And it was cut in 2018, perhaps ironically in the best year ever for FTSE 100 dividends.

Poor dividend cover isn’t necessarily a bad omen. Dividends are often maintained through a few years of weaker earnings. Vodafone’s earnings grew in the 2021-22 year too, and analysts expect that trend to continue in the coming years.

Debt

Debt is my bigger fear. At 31 March, net debt stood at €41.6bn. At the current exchange rate, that’s £36.2bn. It’s more than Vodafone’s entire market-cap of £27.7bn. At least it seems stable, slightly below 2020’s level.

Vodafone doesn’t seem too concerned by debt though, and puts its net debt to adjusted EBITDAaL multiple at 2.7x, That’s within the target range of 2.5x-3.0x. EBITDAaL is a non-standard measure which adjusts for several lease-related and other items, and it looks fair enough to me.

The company is also in the middle of a share buyback programme. And that suggests it’s not worried about liquidity.

Global outlook

I had other (non-financial) doubts over Vodafone in the past. Essentially, the group looked like a whole load of global telecoms operations that weren’t well connected. But I think that’s improved.

Vodafone has just announced its latest global joint venture. It’s partnered with Altice in Germany, and called it FibreCo. This will be owned 50/50 by Altice and Vodafone Germany. And it aims to install fibre-to-the-home to up to seven million homes over a six-year period.

Verdict

So what’s my verdict? Is Vodafone a no-brainer buy now? If it wasn’t for Vodafone’s high levels of debt, for me it would be, yes. But even with the debt, it’s still high on my candidate buy list.

Here are two UK shares I would consider adding to my portfolio right now that both have a dividend yield of at least 7%.

Legal & General

The first share is one I like the look of at the moment and I have already bought it for my own portfolio this month. The company in question is financial services provider Legal & General (LSE: LGEN).

I think the long-term economics of the insurance industry are attractive from an investment perspective. Demand tends to be robust – certain types of insurance are mandated by law – and providers such as Legal & General have long experience that should help them price risks suitably.

As well as its long history, Legal & General benefits from a well-established brand and large customer base. That gives it an advantage compared to upstart rivals, as it can attract customers without having to spend as heavily on marketing.

8%+ yield

The company also looks attractive to me from an income perspective. At the moment, its dividend yield is 8.1%. It has set out a plan to increase dividends annually over the next several years, although dividends are never guaranteed.

There are risks though. The pensions market has recently seen forced selling of shares as companies scramble to meet demands for cash. Legal & General has told the market that it has not been a forced seller. But the episode highlights one of the risks financially turbulent times can pose for companies that hold large share portfolios, including this one.

Despite the risks, I like the long-term outlook for it and plan to hold my shares for the foreseeable future.

Vodafone

Another FTSE 100 company on the list of shares to buy now for my portfolio if I had spare cash would be Vodafone (LSE: VOD).

The telecoms giant needs little introduction. I like its international reach, large installed customer base and position in an industry I expect will see ongoing strong demand. Despite that, the Vodafone share price has shed 9% in the past year. That has pushed the dividend yield up to 7.4%.

One concern I have about the dividend is whether it will be maintained. Vodafone reduced the size of its payout in 2019. It currently has a lot of debt on its balance sheet. Rising interest rates might mean it decides to use free cash flow to cut borrowings rather than pay out chunky dividends.

Still, if it did strengthen its balance sheet that might help the business’s long-term financial health. With a leading presence in many markets and strong brand, I think the future looks bright for Vodafone.

This beats the average FTSE 100 yield of 4.2% by a large distance. And things get even better for investors next year. For then the dividend yield jumps to 8%.

Does the prospect of giant dividends make Vodafone a top income stock to buy? Here I’ll examine its dividend forecasts for the short-to-medium term and reveal whether I’d buy the telecoms giant for my own portfolio.

Dividends tipped to rise!

Vodafone hasn’t grown its dividend for several years. In financial 2019 it rebased the annual dividend from 15.07 euro cents per share to mend its balance sheet and fund infrastructure improvements.  

It paid a much-reduced 9 cent dividend payment then. It’s paid rewards at this level during the following three years. And the City expects more of the same this year. However, the payout is tipped to rise to 9.2 cents in financial 2024.

Dividend coverage falls well below the desired security benchmark of two times and over, however. A reading above the two times region provides a wide margin of safety in the event that earnings estimates miss.

For the next two years Vodafone’s expected dividends are covered around 1.2 times by predicted earnings.

Cash machine

It’s worth noting that some investors are sceptical about Vodafone’s ability to meet these medium-term dividend forecasts. As well as that weak dividend cover the business has a lot of debt on its balance sheet. It had €41.6bn worth as of March, in fact.

But I think there’s a great chance that the telecoms firm will be able to meet current dividend estimates. This is thanks to its formidable knack of generating huge amounts of cash.

Adjusted cash flow rose 8% last year to €5.4bn, liquidity which allowed the company to make €2bn worth of share buybacks. And Vodafone says it is on course to generate robust cash flows of €5.3bn in financial 2023.

Reports have emerged recently too that suggest the business is considering selling half of its 82% stake in its masts business, Vantage Towers. This would help reduce debt and give it around £6bn of extra cash to play around with.

The verdict

It’s by no means certain that Vodafone will make this year’s dividend forecasts. But the chances of the company doing it are very high, in my opinion.

And I believe its dividend yields around 8%, combined with a rock-bottom forward P/E ratio of 10.5 times, make it a highly attractive value stock to buy.

What’s more, I’d buy Vodafone shares to hold for the long haul, too. I think the huge investment it’s making in infrastructure, and the rapid rate at which it’s winning customers in fast-growing African markets, could help it make spectacular profits over the next decade at least.

One good idea in uncertain times is to see what other investors are buying. I’m personally looking at how share pickers using Hargreaves Lansdown’s platform have been investing in recent days.

Here are two of the most popular stocks that Hargreaves Lansdown investors have bought in the past week. I think they are great buys for those following Warren Buffett’s investing strategy.

Glencore

Hunting for value is a key part of the Berkshire Hathaway chief’s investing strategy. He doesn’t focus on low price-to-earnings (P/E) ratios or book value, but rather on what he coins a stock’s “intrinsic value”.

This can be assessed in a variety of ways. But it seems that Hargreaves Lansdown investors are heavily buying ultra-cheap Glencore (LSE: GLEN) shares. The FTSE 100 miner is the second most frequently traded stock purchased in the past seven days, accounting for 1.35% of all buy orders.

Glencore’s share price has leapt 25% in 2022 even as worries over global growth — and by extension demand for commodities — have exploded. This is even though this has the potential to take a big bite out of mining sector earnings.

It seems that investors continue to think Glencore is trading below value. And I’m inclined to agree with them. The company owns a portfolio of world-class mines producing copper, cobalt, and a range of other raw materials, demand for which could soar as the move to renewable energy and electric cars takes off.

Warren Buffett might not care for P/E ratios. But the rock-bottom reading of 3.6 times that Glencore’s share price currently commands merits attention in my opinion. The miner also carries an enormous 10.7% dividend yield today.

Vodafone Group

Buffett recently liquidated his entire holdings in Verizon Communications. But don’t assume that the ‘Oracle of Omaha’ has suddenly taken a bearish position in the telecoms space. After all, Berkshire Hathaway continues to hold shares in both T-Mobile and Liberty Global.

I’m certainly optimistic about the fortunes of FTSE 100-quoted Vodafone Group (LSE: VOD). And so are many investors who trade through Hargreaves Lansdown. Vodafone was the 10th most frequently traded stock in the past week, accounting for 0.79% of all buys.

There are two big threats to telecoms companies like this. The industry in which they operate is highly competitive. And their operations are highly capital-intensive, which can in turn damage profits and shareholder returns.

But on balance I think Vodafone is a great share to buy for the future. Telecoms demand is set to keep growing strongly as the digital revolution carries on. It’s why this particular company is spending fortunes on 5G and broadband rollout in its markets.

I also like Vodafone’s huge exposure to Africa. It has more than 270m customers on the continent, where it operates in both the fast-growing telecoms and mobile money sectors.

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• Globe-spanning telecoms giant that runs mobile and fixed networks in 21 countries, serving about 315m mobile customers, 28m broadband customers, and 22m TV customers.
  
• Typically, the company’s network quality ranks in the top two in the countries where it operates, allowing it to compete on quality and attract more valuable, heavy data-hungry users.
  
• The company is also well positioned in the enterprise market, which is currently about 27% of service revenues. It’s taking market share, driven by businesses shifting to the cloud.
  
• Currently offers investors a 7% trailing yield.

The dividend yield on many top-quality UK shares has shot higher as they’ve fallen in price. The panic that’s engulfed the markets in 2022 also means many of these income heroes currently carry rock-bottom valuations.

Here are two dirt-cheap dividend stocks I’m considering buying for my own portfolio.

Vodafone Group

I think Vodafone Group (LSE: VOD) is a perfect investment for today. People and businesses need to stay connected through their phones, tablets and computers at all points of the economic cycle. This gives telecoms companies like this the means and the confidence to pay dividends, even during downturns.

I also believe Vodafone is a shrewd income stock to buy in this period of high inflation. Under current rules, the business is permitted to lift the annual cost of its contracts by the rate of CPI, plus 3.9%. This gives it a terrific cushion against rising costs.

I like Vodafone in particular because of its huge presence in the African telecoms and mobile money markets. This could deliver robust long-term earnings (and consequently dividends) growth as economic conditions rapidly improve.

Recent share price weakness means the company’s dividend yield has leapt to 7.2% for this financial year (to March 2023). It also means its forward price-to-earnings (P/E) ratio has crumbled to a modest 11.9 times. As a value investor I find this combination hard to ignore.

It’s true that Vodafone faces significant competition in its European and African territories. But I still believe it has the tools to deliver vast shareholder returns over the long term.

SSE

Energy producer SSE (LSE: SSE) is another cheap stock I’d buy for passive income. Its forward dividend yield comes out at a FTSE 100-beating 5.3%. And its trades on a bargain-basement price-to-earnings growth (PEG) ratio of 0.5 for this financial year (to March 2023).

Speculation that SSE will avoid a windfall tax has boosted the company’s share price in recent hours. Though in this fluid political climate it’s possible the electricity giant could still be roped into paying the tax. The UK Treasury has predicted this could cost the entire industry an eye-watering £5bn.

But this wouldn’t deter me from buying SSE shares today. The company also operates in a highly defensive sector, a quality which gives me as a dividend investor supreme peace of mind. Like Vodafone, it should still enjoy robust revenues and cash flows, whatever happens.

I’d also buy SSE shares to latch onto the lucrative world of renewable energy. Demand for cleaner electricity is rising sharply as the battle against climate change intensifies. And SSE will invest heavily here over the next decade to increase its green energy capacity. Its Dogger Bank asset for example will be the world’s largest offshore wind farm when completed in 2026.

Travel

During the pandemic, all stocks related to travel took a massive hit as demand plummeted. Yet, most travel companies and airlines have recovered well, and that’s particularly the case for British Airways owner IAG (LSE:IAG).

The company’s recent H1 results were particularly positive. Notable successes included Q2 being the first profitable quarter since the beginning of the pandemic. IAG also reduced its debt and is expecting a 78% capacity compared to 2019 levels.

Of course, there are still challenging times ahead as the company must compete with low-cost airlines such as Ryanair and easyJet. The share price has somewhat recovered from its lows in October 2020, but it’s still lower than its pre-pandemic trading levels.

Nonetheless, as business and personal travel continues to rise, I think IAG has a lot of potential to provide long-term gains.

Banking

Inflation in the UK is currently over 10%, which is a 40-year high for the country. With rising inflation comes an increase in interest rates from banks, and the rate is set at 1.75% right now.

A rise in interest rates is particularly beneficial for banking sector stocks, as the likes of Barclays (LSE:BARC) can charge more for products such as mortgages and loans.

Certainly, there’s a level at which high rates deter people from borrowing as they don’t have the ability to pay it back. If interest rates reach considerably higher levels, banks may start to see a reduction in customers, but I believe we are still a way off from that.

Barclay’s share price is up over 11% in the past six months and is still the cheapest bank on the FTSE 100. The company has a P/E ratio of five, compared to competitors such as HSBC that has a 9.13 P/E ratio.

Telecommunications

A stock that offers both a decent chance of performing well and has an impressive dividend yield is Vodafone (LSE:VOD).

During recessions, telecom stocks tend to remain stable and can withstand external pressures. The company also has an impressive dividend yield of 5.9% for this year, which is far higher than the FTSE 100 average of 4%. Vodafone has also set its 2024 yield to 6%.

Although the share price has been pretty flat recently, only down 2.41% year to date, I think this could change soon thanks to increasing roll-out of 5G and broadband. However, it is important to note that telecom companies like Vodafone require extremely large amounts of capital to grow and invest in new technologies, so this may dampen the company’s performance in the short term.

On the whole, analysts seem positive about the stock — there’s a consensus Buy rating, and Morgan Stanley analysts believe the shares could reach 180p. That represents a 60% upside.

Overall, if I had a spare £500 I would split my money across IAG, Barclays and Vodafone, as I believe all will pay off in the long term.