Inflation has been rising in the UK since late spring. After hitting the 2% threshold back in May, inflation has been creeping higher. The latest reading for October was 3.1%. At a basic level, my money is being eroded in value by this inflation. In order to make a positive return, ideally I need to find investments that can give me at least 3.2%. One way I can look to do this is via top dividend stocks.
Meeting my goal without excessive risk
Given that the purpose of this exercise is to try and beat inflation, I don’t want to try and take any more risk than necessary. What I mean by this is that I’m not going to pick one of the high-risk, 10%+ dividend-yielding stocks. This is because there’s the potential for the dividend to be cut or to have some issues with the share price in the future.
Rather, I’d try and look for more sustainable lower-yielding shares that still fit the bill. Although my passive income from these stocks will be lower in comparison, I’ll still meet my goal. I can always look to allocate other funds towards growth stocks or ultra-high-yield dividend stocks to achieve other aims.
With this in mind, here are two good value dividend stocks that I like at the moment.
Top dividend stocks I like
United Utilities Group has a dividend yield of 4.04%. The share price is also up 22% over the past year. The company is performing well this year, as noted in a trading update in late September. It expects revenue for H1 to be up 4% on the first half of last year. This might not seem like much, but it’s this steady growth that makes it appealing as a top dividend stock for me.
One risk is that water consumption for households could fall as more of us go back to work in offices in 2022.
Another utility dividend stock that I like to help me beat inflation is SSE. The company has a yield of 4.88%, with the share price up 25% over the past year. I rate this as a sustainable stock due to the large push towards renewable energy. In fact, the business is currently constructing the world’s largest offshore wind farm in the North Sea.
This push future-proofs the business operations in my opinion. So even if inflation continues to run high in years to come, I’d expect dividends from SSE to enable me to offset this.
A risk of buying shares in SSE is that high capital expenditure is needed to build the renewable projects. The company will need to ensure it keeps a close eye on costs to ensure that cash flow to shareholders isn’t hampered.
Dealing with inflation
Depending on the actions of the Bank of England, inflation running above 2% could be with us for a while. Although dividend income is never guaranteed, buying these top dividend stocks should allow my money to generate a positive return after taking into account the impact of inflation.
jonathansmith1 and The Motley Fool UK have no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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