UK inflation is flying. In the latest reading for November, CPI inflation came in at 5.1%. This is a whopping figure, and one that has risen since the summer. Given that the Bank of England target rate is only 2%, the extent of the overshoot is clear. One way I can try and stop my cash from being eroded by inflation is to invest in top dividend stocks.
A dividend stalwart
In our Data section, you can find our top UK and US dividend yields. This is updated regularly to give an accurate view of the stocks.
The first top UK dividend stock we like is British American Tobacco (LSE:BATS). The current dividend yield is 7.8%, easily outstripping inflation.
The company is well known for traditional tobacco products, but is actively making a push towards cleaner and healthier alternatives. For example, in the recent trading update, the New Category performance (which houses these initiatives such as vapes) was said to be “a sizeable contributor to group revenue growth”.
Only time will tell as to how much of this shift will become profitable, but it’s clear that the strategic vision is there. This won’t stop ESG investors from screening out BATS from many portfolios, and this is one risk that we note going forward.
Yet from a dividend perspective, the quarterly payouts are very attractive. It has a commitment of a 65% payout policy, so as long as earnings are strong, future dividends should take care of themselves.
A gold dividend stock
The second top dividend stock we like is Polymetal International (LSE:POLY). The company mostly mines for gold and silver from a collection of projects in Eastern Europe. At the moment, the dividend yield sits at 7.4%.
Although the main aim here is income, we think that the share price could also see gains into 2022. The fate of the company is linked to the price of precious metals. With concern around Omicron over the winter, buying gold is the natural safe haven trade. Periods of high inflation also tend to see investors pile into gold, as it’s seen as a store of value.
As a knock-on impact, should gold and silver prices run higher in coming months, financial results for Polymetal should also improve. This in turn should support the continuation of a dividend being paid, and so on.
In terms of risks, the company does deal with emerging market currencies that are very volatile. Therefore, even if the company performs well, heavy depreciation in something like the Russian Ruble could act as a negative drag.
Overall, we like both stocks for dividend potential, and would buy now to help to offset rising inflation in the UK.
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