Warren Buffett recently claimed that inflation “swindles almost everybody“. He may be right. UK annual price rises are currently at a 41-year high of 11.1%. So, I have been considering the steps I can take to fight back against this ‘swindler’. Dividends will continue to represent a meaningful part of my total returns as the economy decelerates. Thus, specialist dividend shares are on my radar.
I am confident that owning income shares with rising share prices will be a sensible decision for me. Some companies are simply better positioned to deal with pricing pressure than others. I am backing two FTSE dividend shares to continue outperforming amid persistent inflation.
Unearthing the best dividend shares
In my opinion, companies with the most pricing power are in the best position to pass on rising costs to consumers. I see few FTSE 100 constituents with the might of mining giant, Glencore (LSE:GLEN). I feel the company is unrivalled regarding its size and scale in its market.
Volatility has greatly boosted its trading profits. Most importantly for me, the company has a clear willingness to return excess profits to investors.
Positively, Glencore’s share price is up more than a third (33%) this year— a terrific run in the current climate that I expect to continue.
Its dividend yield for this year is 8%. To my knowledge it is one of the highest yielding dividend shares across the FTSE 100. I will not be phased even if the dividend falls next year. It is likely I could receive other cash returns in the form of share buybacks if I hold on to the shares long term.
Capital growth potential
The second stock under my spotlight is tobacco giant, Imperial Brands (LSE:IMB). Its shares are up by nearly a third (27%) this year compared to the FTSE 100 index (-3%).
Despite the positive year, I think the shares still look cheap. Trading around 7.8 times projected 2022 earnings, its price-to-earnings valuation is much lower than the sector average of 11.4 times. A standout feature from its recent full-year results was the free cash flow, up 68% year on year. Certainly, I believe there is room for management to grow the already high dividend in the future.
The slight tail risk for me concerns the financial cost the company will bear following its exit from the Russian market. But I feel this is easily covered by its improved cash position.
A smoother ‘total return’ ride
Experience tells me that dividend payments can make a stock’s total return less volatile. This is a very welcome antidote following the stock market volatility of the past year.
The mere fact a company pays a dividend makes me think it is profitable and has excess free cash flow. This is a quality I am sure will act as a return buffer during these challenging times.
The dividend shares I have cited have a great track record of dividend pay outs and rising prices amid high inflation. I intend to purchase shares in both companies before the year is out — particularly if this stubbornly high inflationary period looks set to persist.
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Henry Adefope 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.