After a turbulent week in global markets, it’s clear that inflation is only likely to worsen in 2022. Exiting investments and sitting on cash is an easy way to lose real value. So, I’m opting to prop up part of my portfolio with three of the top-yielding UK dividend stocks.
With prices rising at their fastest rate for 30 years, a perfect storm is coming closer. Inflation is expected to exceed 7% in April, while UK pay packets will be further eroded by increased national insurance, higher mortgage rates and spiralling energy costs.
As an existing shareholder of tobacco company Imperial Brands (LSE: IMB), I’d already been seduced by one of the highest dividend yields in the FTSE 100. At its current price of 1,465p, the company offers an expected yield of over 8%, beating inflation forecasts.
The recent dip in its share price may be a further buying opportunity for me, although Imperial isn’t immune to the effects of war in Eastern Europe. Around 2% of its revenue comes from Russia and it also employs over 600 staff in Ukraine.
Unloved by many financial institutions that are unwilling (or unable) to invest in so-called unethical businesses, Imperial has a solid business model and is likely to maintain high dividend payouts. I’ll be adding to my holding in due course.
Undervalued dividend payer
In a very different field, M&G (LSE:MNG) is also a big dividend payer (its yield is close to 9% of the current share price). I was curious to understand why the company appears undervalued at present.
Obviously the asset management business in the UK is a highly competitive sector. Market leader Legal & General Group manages over three times the volume of assets that M&G does. Consolidation in the sector has also dropped the company down the rankings in recent times.
Nevertheless, consensus forecasts provided by analysts in February show expected operating profits close to 2021 numbers and a slight increase in the dividend is forecast for the year ahead.
It remains to be seen how the conflict in Ukraine will affect the investment sector. Indeed the rising cost of living could well force some investors to draw down their pension pots.
Cash is however losing value at its fastest rate for 30 years, so I expect asset managers such as M&G to continue to perform well. If the company weathers the immediate market turbulence, I will be looking to buy this stock.
My final pick is UK housebuilder Persimmon (LSE:PSN) whose dividend yield currently sits at around 10%.
The Persimmon share price has suffered significantly over the past 12 months. In fact, it has fallen from a high of over 3,272p to around 2,314p at present. Obviously, rising mortgage costs and inflation may well dampen demand in the housing sector.
Looking forward though, I take comfort from the healthy financial position of Persimmon. In its recent results, the company posted full-year profits approaching £1bn. It also has a healthy cash buffer of £1.246bn and forward sales of over £2.2bn.
As a mass-market builder, Persimmon will not be immune to short-term market shocks. Its focus on energy-efficient new homes at the lower end of the price spectrum should however favour the company going forward. I like its healthy dividend payout as a hedge against spiralling inflation and will be adding this share to my portfolio.
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Fergus Mackintosh currently own shares in Imperial Brands. The Motley Fool UK has recommended Imperial Brands. 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.