2 dividend stocks ideal for beating inflation

The Motley Fool

One of the biggest risks currently facing investors is inflation. Since the EU referendum it has increased and now stands at around 3%. Looking ahead, there's the potential for a further rise as Brexit moves closer. Therefore, buying companies which are capable of delivering a relatively high and growing dividend could be a shrewd move.

With that in mind, here are two stocks that appear to offer impressive income outlooks. They could also help you to overcome that threat of inflation.

Challenging period

Reporting on Tuesday was international convenience food company Greencore(LSE: GNC). Its share price dropped 25% after downgrading its outlook for the 2018 financial year. The business has experienced weak performance in its underutilised original sites in the US the first half of the current year. Alongside the timing of new business contributions and unfavourable exchange rates, this means that adjusted earnings per share is expected to be between 14.7p-15.7p, versus previous expectations of 15.7p-16.6p.

Clearly, the company's profit warning is disappointing. However, its core UK and US operations continue to perform as per expectations. Therefore, it would be unsurprising if there's a recovery over the medium term. That's especially the case since the business appears to have a strong position within its key markets.

With Greencore's dividend yield being around 4%, it offers a real income return right now. Its dividends were covered almost three times by profit last year and this suggests they remain highly sustainable at the present time. Therefore, while considered a more volatile share than many income investors would normally buy, the company could provide a high return in the long run.

Consistent performance

Also offering an inflation-beating outlook is housebuilder Barratt(LSE: BDEV). The company has enjoyed a period of strong growth in recent years and this looks set to continue. Government support for the housing market remains strong via the Help to Buy scheme in particular. This could lead to a continuation of the 'purple patch' housebuilders have enjoyed in recent years.

Improving financial performance could allow Barratt to deliver a rising dividend. The company currently has a dividend yield of around 7%, which is covered 1.5 times by profit. This suggests that not only could it offer an income return above and beyond inflation, it may provide dividend growth also ahead of even a fast-rising price level.

With Barratt due to report a rise in its bottom line of 6% this year and 5% next year, the company appears to have a positive outlook. Since it trades on a price-to-earnings (P/E) ratio of around 8.5, it appears to offer good value for the long term. And while the prospects for the UK economy remain uncertain, an imbalance between demand and supply in the housing market could lead to a prosperous future for housebuilders... and shareholders.

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Peter Stephens owns shares in Barratt. The Motley Fool UK owns shares of and has recommended Greencore. 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.