2 shares with simple dividends to fight galloping inflation!

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With inflation hovering around 10%, I’m counting on dividend-paying stocks to drive my portfolio forward. The thing is, picking the right dividend stocks can be tricky. After all, big dividend yields can be unsustainable, especially anything around the 10% mark.

So let’s take a look at two of my top dividend-paying stocks to buy now.

A booming lender

Lloyd’s (LSE:LLOY) is not the most attractive dividend stock, I appreciate it. But it offers a solid yield of 4.2% and the outlook is very bright for Britain’s biggest mortgage lender.

So why am I so optimistic about the prospects for this title? Well, there are several reasons. First, net interest margins (NIM) – the difference between savings rates and lending rates – are increasing. This is an integral part of the bank’s profitability.

Rising rates are already impacting the bank’s earnings. But rates are likely to go much higher. Some analysts see interest rates reaching as high as 4% in an effort to bring inflation down. This would have a profound impact on revenue generation.

It should also be noted that Prime Minister Liz Truss intends to stop a planned increase in corporation tax. However, there are no plans to remove a planned reduction on the 8% tax surcharge paid by banks – this should be reduced to 3%.

Of course, the predicted recession will not be good for credit quality. But higher interest rates should more than compensate for this.

Lloyds has signaled its intention to continue to increase its dividend and, perhaps with some tailwinds, it will return to 2018 levels sooner rather than later. I already own Lloyds shares, but would buy more today.

A dividend giant

Legal and general (LSE:LGEN) offers a considerable dividend yield of 7%. And while I’m normally wary of such a high yield, it seems pretty safe. It can comfortably afford to pay too, with its 1.7 dividend coverage also quite good (although a coverage of two would be sounder). Plus, it’s been a regular dividend payer for more than three decades.

The stock’s long-term performance is quite solid – it has achieved an 11% annual return, including dividends, over the past decade.

And in the current macroeconomic environment, the company should do quite well. Indeed, in a high interest rate environment, she must set aside less capital now to make future retirement payments. “We are benefiting from rising rates around the worldsaid Legal & General CEO Nigel Wilson in a statement.

Generally speaking, a recession could be difficult for some of the financial services it offers. For example, customers are less likely to pay into a Stocks & Shares ISA when finances are tight. But overall, the current environment appears to be providing L&G with a tailwind.

I have already added Legal & General to my portfolio, but with the share price around 260p I would definitely buy more.

About Jason Norton

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