The UK inflation rate rose to 7% last month and, as a result, large consumer goods companies like Unilever and Sainsbury’s have warned the public of price hikes amid rising fuel costs. To stretch my income and get the most out of my investments, I have chosen to focus on UK dividend shares in May. The FTSE 100 has some quality options that maximise passive income and these are the two companies I’m looking to buy right now.
Steady dividend payer
In uncertain times, I turn to tested companies with a strong history of shareholder returns. British tobacco company Imperial Brands (LSE:IMB) is the fourth-largest tobacco company in the world and owns popular cigarette brands Winston and John Player Specials. Its share price is currently 1,655p with a dividend yield of 8.38%.
And while this company has historically been a poor growth option, its share price is up over 11% this year. The company has high consumer loyalty and posted solid results last year. Pre-tax profits went up nearly 50% from £2.16bn in 2020 to £3.23bn last year. And compared to 2020, basic earnings per share went up a whopping 89% to 299p. The company also has a strong cash flow of £1.5bn to support its high yield.
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Dividend growth has been minimal over the last two years. But historic data suggests that the company is one of the top FTSE 100 dividend shares. The board stated recently that its current capital structure is well suited to maximise shareholder returns through a progressive dividend policy.
The company is also adapting to the times and shifting its focus to e-cigarettes with several new brands that focus on new-age smoking tech.
However, I think growth prospects are negligible given that tobacco sales in the west are dropping. And the tobacco sector is always liable to tighter regulation and health taxes. Despite this, the brand is still posting strong sales figures and the 8.3% dividend will add a good chunk of change every year to my bank account.
11%+ yield with growth potential
Mining giant Rio Tinto (LSE: RIO) has been on my dividend shares watchlist for a long time. And I think its yield of 11.7% makes it one of the best passive income options for me today. After a turbulent couple of years, the company has made a steady recovery. Its shares have jumped 23.2% in the last six months but one-year returns still stand at -8.3%.
One reason I am optimistic about the company’s growth potential is its focus on battery metals like lithium. The company recently purchased the Rincon lithium project in Argentina for $825m. And although its licence to the Jadar project in Serbia has been revoked due to environmental concerns, the company is optimistic about a rework. If the company succeeds, it would become one of the top lithium suppliers in the world by 2030.
There are some concerns regarding the dip in iron ore sales over the last quarter. And the company has been hit with sanctions, interest rate hikes, and labour shortages in recent times. This could impact future revenue and subsequently, its yield.
But the miner has navigated a volatile commodity market over the last two years and come out looking strong. If current levels of growth remain, I think Rio Tinto could become one of the best long-term dividend shares for my portfolio.
