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This dividend stock’s yield is higher than the 5% UK inflation level!

Hand holding pound notes

The UK’s Consumer Prices Index (CPI) inflation number for the 12 months to November was revealed this morning to be 5.1%. This is a 10-year high, meaning the value of my cash in the bank is dwindling. To combat this, I am on the lookout for dividend stocks for my portfolio with a yield that beats 5.1%! Imperial Brands (LSE:IMB) is one such stock.

Inflation rising

November’s 5.1% CPI number was greater than October’s 4.2%. Expectations were for it to be 4.7%, so the news this morning came as a surprise, but not a good one. Experts did not expect inflation to head above the 5% figure until next spring!

ONS chief economist Grant Fitzner said, “A wide range of price rises contributed to another steep rise in inflation”. These rising costs are pushing up the cost of living. This includes essentials such as food, clothing, and fuel. The costs of goods produced by factories and the price of raw materials are also surging. These factors are also likely to put more pressure on consumer prices in the coming months.

Looking for dividend stocks

A way I am looking to beat inflation is by looking for the best dividend stocks. A dividend yield is calculated by reviewing the annual dividend per share paid out, compared to the share price when I purchase the shares. This provides me with a percentage yield.

With my spare cash sitting in my bank and its value dwindling, I could use it to buy dividend stocks that provide a yield higher than 5%.

There are a couple of risks to consider, however. As mentioned, new inflation figures are revealed each month. Current uncertainty and rising levels means it could well go up again in the coming months. So for example, if the stock I target has a dividend yield of 5.5%, and new figures revealed next month were to surpass that level, the yield would not exceed the new level of inflation.

Furthermore, dividends are not guaranteed and are intrinsically linked to the well-being and performance of a company. They can be cancelled or cut. If either of these risks come to fruition, the value of my investment would be negative.

Dividend stock with a 9% yield!

Imperial Brands currently has a dividend yield close to 9%! Smoking firms don’t always have the best reputation among investors, especially in recent times but as a smoker myself, this doesn’t bother me.

At current levels, the shares are trading for 1,566p compared to a year ago when they were trading for 1,575p. Imperial sports a price-to-earnings ratio of just 6 which I consider cheap for a large, well-established company with a long track record of performance and dividends. I understand past performance is not a guarantee of the future but I use it as a gauge.

Imperial’s recent full-year results were promising and showed it is adapting to changing market conditions and sentiments towards smoking. Revenue, profit, and dividend per share increased. It has decided to cut costs and streamline where possible. Furthermore, it is pulling out of under-performing markets as well as looking at innovative “next generation” products.

I would happily add Imperial shares to my holding at current levels as a dividend stock to beat inflation levels.

The post This dividend stock’s yield is higher than the 5% UK inflation level! appeared first on The Motley Fool UK.

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Jabran Khan has no position in any shares mentioned. 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.