UK food prices soared by a record rate last month, according to the British Retail Consortium. The 13.3% annual rise in December was up from 12.4% in November. Unfortunately, high inflation shows no sign of waning. So what do I do? Well, for investors, dividend shares have historically been a popular choice to protect capital against inflation.
Here are two high-yield dividend stocks that could help me offset the rise in the cost of living. Both are well above the FTSE 100 average yield of 3.5% and could therefore turbocharge my passive income. That’s why I’ve recently added to both stocks in my income portfolio.
Real estate investment trusts (or REITs) have to pay 90% of yearly profits to shareholders in the form of dividends. So they play an important and lucrative part in my dividend portfolio.
One stock I particularly like in this space is FTSE 250 constituent Warehouse REIT (LSE:WHR). As the name suggests, it focuses on buying up and leasing out warehouse storage and logistics hubs to businesses. This is a market that has powerful tailwinds driving it forward, due to the continuing growth of e-commerce.
Warehouse REIT owns 91 estates totaling some 8.5 million square feet of industrial and logistics space. Its occupants range from start-ups to the likes of Asda, John Lewis and DHL.
It recently completed another four long-term lettings, which increased the portfolio occupancy rate to 93.3% from 92.7% (as of 30 September 2022). This also increased the portfolio’s weighted average unexpired lease term to 5.7 years from 5.4 years.
While such positive leasing momentum is encouraging, we still don’t know the effects a recession could have on its occupiers (and their ability to pay rents). However, the stock is down 35% over the last year, so some of this economic uncertainty may already be priced into the share price.
The stock’s dividend yield of 6% looks extremely attractive to me right now.
Enjoying regulated monopoly status and a decades-long record of hiking dividends, National Grid (LSE:NG) is a popular go-to dividend share. Its core business of operating energy transmission networks is in little danger of being disturbed during a recession.
The stock offers a forward dividend yield of 5.3%, as things stand. The total dividend is expected to rise from 51p today to 57.5p in fiscal 2024.
Obviously, maintaining the country’s power grid isn’t cheap, especially while the firm is also investing to decarbonise the energy system. Over the five-year period to 2025/26, it now expects to invest up to £40bn across its energy networks and adjacent businesses in the UK and US.
So one concern here is the company’s net debt, which stood at £46bn on 30 September. National Grid expects to reduce this by around £5bn, funded by the sale of some of its gas transmission assets.
Nevertheless, this is still a colossal amount of debt. Long term this could become more of an issue, even threatening dividend growth. However, the current dividend forecasts are bolstered by the company’s impressive cash generation. The dividend doesn’t seem to be under any immediate threat.
On balance, I think the highly defensive nature of its business and long track record of increasing dividends make National Grid shares a top pick for passive income.
Ben McPoland has positions in National Grid Plc and Warehouse REIT Plc. The Motley Fool UK has recommended Warehouse REIT Plc. 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.
Motley Fool UK 2023