We were told this week that UK inflation has hit a 40-year-high of 9%. With this trend set to continue, I’m looking to enhance my income to fight against rising prices. I think these two FTSE 100 shares offer stable dividends that will raise my passive income and reduce the strain from inflation.
A FTSE 100 insurer
Insurance firm Phoenix Group Holdings (LSE:PHNX) is my first candidate. The share is currently trading with a strong 7.5% dividend yield — far above the current 3.7% average for the FTSE 100. Alongside this, the company has 13m customers and £310bn in assets under management through arms such as Standard Life.
Phoenix Group has typically made the bulk of its revenue from managing what it calls heritage business brands. These are pension and maturing life insurance plans that are no longer open to new customers. This business model provides relatively weak growth and the firm has been trying to grow its active insurance position through the acquisition of brands such as Standard Life.
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The group has generated record cash of £1.72bn in the last year. This was slightly up from £1.71bn the year before. And management suggested that this growth proves the shift of focus toward operating insurance brands is working.
Despite management’s beliefs, I’m not convinced Phoenix Group will see much growth in the next few years. However, this isn’t a concern for me when the company offers the dividend yield it does. Even if the share price goes nowhere, I think the dividend on its own justifies adding this FTSE 100 share to my portfolio.
A global energy giant
The BP (LSE:BP) share price has been boosted by rising oil prices over the last year. The share price has risen a strong 37% as a result.
The energy giant offers a 4.3% dividend yield, which is higher than most FTSE 100 shares but not excessively so. And BP has promised to increase returns to shareholders in other ways too. The company recently announced an expansion of its share buyback programme by $2.5bn. This constrains the supply of shares and it could help investors offset the woes of inflation through a rise in the share price.
The FTSE 100 company does have risks that need to be considered. There have been calls for a windfall tax on energy companies that have benefited from a rise in oil prices that they’re not responsible for. This would see BP forced to pay the government a percentage of its profits and could harm future returns.
Alongside this, the future of BP is heavily dependent on the global energy transition. While the firm has made small steps to increase its renewable operations, I believe it needs to do more to safeguard its future in the energy category.
Despite these concerns, I believe BP is still placed well to deliver high returns through its dividend and share buyback programme that could help me offset the costs of inflation. I’m seriously considering taking out an investment with my next chunk of savings.
