2 Footsie dividend stocks set to smash UK inflation

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Direct Line red phones

With UK inflation set to keep chugging steadily higher, the need to pick stocks with robust and sustainable dividend yields is once again high on the agenda.

Britons breathed a sigh of relief last week after the consumer price index (CPI) for March stayed at 2.3%. While matching the three-and-a-half-year peak reached in the prior month, it came as some relief given the stratospheric inflationary rise of recent months -- the CPI gauge stood at a mere 1.1% just a year ago.

However, the City expects last month's result to prove nothing more than a pause as extreme sterling weakness forces consumer prices skywards. Indeed, Bank of England Monetary Policy Committee member Michael Saunders commented this week that CPI could rise as high as 3% by the close of the year.

Motoring along

In this climate I reckon diversified insurance provider Direct Line Insurance Group(LSE: DLG) could prove just the ticket for dividend chasers.

The insurer is anticipated to pay a dividend of 24.2p per share in 2017, according to City brokers, a figure that yields an astonishing 7.1%. And with the payout expected to move to 25.7p next year Direct Line's yield surges to an even-better 7.6%.

And these projections are supported by predictions that earnings should continue to fly. Indeed, the Square Mile expects Direct Line's bottom line to rise 37% in 2017, and an additional 3% increase is pencilled-in for next year.

The London insurer is benefitting from steady price rises at its Motor arm, a part of the business that generates around half of all premiums. But the car market is not the only reason for investors to be cheerful -- indeed, Direct Line saw new business at its Motor and Home divisions hit their highest levels in 2016 since the company's IPO four-and-a-half years ago, helped by massive brand investment in the likes of Churchill and Privilege.

Meanwhile, income chasers can take huge confidence from its healthy balance sheet. The company's Solvency II registered at a robust 165% last year after dividends. 

Spark up

A rising inflationary environment should also encourage investors to at least take a look at electricity network provider National Grid (LSE: NG).

The power play remains stuck to its pledge to "maintain the policy of increasing dividend per share by at least RPI for the foreseeable future." The retail price index (RPI) rang in at a meaty 3.1% in April and is anticipated to continue rising as Brexit negotiations are likely to keep the pound under pressure.

And City analysts expect National Grid to make good on this promise, lifting a dividend of 44.3p per share in the year to March 2017 to 45.7p this year and 47.1p in 2019. Consequently the company sports huge yields of 4.6% and 4.7% for 2018 and 2019 respectively.

National Grid is one of the more secure dividend picks out there given the essential role of electricity. And with the business steadily boosting its asset base to massage earnings growth, I reckon stock pickers can expect yields to remain on the generous side long into the future.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has 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.