As interest rates rise, they can put downward pressure on stock prices. The theory goes… an increase of inflation can push up bond yields. As a result, investors can collect higher interest from risk-free government bonds. So, why take extra risk investing in stocks? On top of that, higher inflation can increase costs for companies.
Now, for short-term investors who will need to cash out in the near future, bonds can be a decent way to go. And more specifically TIPS if you’re interested in protecting against inflation… But for long-term investors, stocks are still the much better choice… that’s if you’re looking for higher returns. And even better, certain businesses are able to increase their product and service prices right along with inflation.
That’s why I’m sharing my top six inflation stocks today. And these aren’t ordinary stocks. They all pay dividends and have a long history of increasing their payouts. So as inflation climbs, the dividend growth alone could easily outpace it.
And before I share these great stocks, just one last note… There are many great companies out there. But not always relative to their price. In the words of Warren Buffett…
Whether socks or stocks, I like buying quality merchandise when it is marked down.
I also try to buy quality goods and businesses when they’re on sale. It’s tough with the market near all-time highs… And for now, these six inflation stocks are towards the top of my buy list. Over the coming weeks and months, I might buy into a few of them. So, feel free to subscribe to my YouTube Channel for updates.
Best Dividend Stocks to Beat Inflation
Coming in at number six…
6. Flowers Foods (NYSE: FLO)
Dividend Yield: 3.39%
Payout Ratio: >100%
PE Ratio: 33
Flowers Foods produces and sells bakery foods across the United States. Some of its many brands include Nature’s Own, Dave’s Killer Bread, Wonder and Tastykake. The company is improving its supply chain to help offset inflation and also has the ability to pass some of those cost increases along to consumers.
5. Procter & Gamble (NYSE: PG)
Dividend Yield: 2.47%
Payout Ratio: 59%
PE Ratio: 24
Procter & Gamble is a household name, or at least many of its brands are. Just to name a few… Tide, Downey, Pampers, Bounty, Gillette, Crest, Mr. Clean, Old Spice, Head & Shoulders, Herbal Essence and Febreze. The company has a huge portfolio of consumer goods and also has the ability to pass along rising costs to consumers. The company is also an elite dividend King. This means it’s one of few companies that have increased its dividend for the last 50 consecutive years.
4. AbbVie (NYSE: ABBV)
Dividend Yield: 5.03%
Payout Ratio: >100%
PE Ratio: 38
AbbVie is a huge biotech company. And the majority of its revenue comes from one drug, Humira. Although, the company is diversifying and has a strong pipeline in the works. It also has a long track record of paying dividends. It’s paid them since 1924 and has consecutively raised them over the last 48 years. Health care costs continue to climb and investing in AbbVie can help you hedge those increases.
3. 3M (NYSE: MMM)
Dividend Yield: 3.14%
Payout Ratio: 64%
PE Ratio: 20
Fun fact, 3M used to stand for Minnesota Mining and Manufacturing. Since, the company has continued its conglomeration domination. The company produces over 60,000 products and generates nearly 50% of its revenue from outside the Americas. This diversification has helped 3M pay shareholders a growing pile of dividends over the years.
2. Realty Income (NYSE: O)
Dividend Yield: 4.57%… and it’s also one of few companies that pays monthly dividends
Payout Ratio: >200%… and when looking back over the past 10 years, the payout ratio has always been above 200%. Now, this might seem unsustainable… but that’s because the standard payout ratio isn’t very useful. It includes earnings and accountants can manipulate earnings in many different ways. It doesn’t give us great insight into the true cashflows of a business. So, this isn’t too concerning for me and dividend payouts should continue.
PE Ratio: 54… that’s the highest on this list but it’s not as unreasonable for REITs.
Realty Income has a portfolio of over 6,500 properties and an occupancy rate of almost 98%. It’s diversified with properties all across the U.S., along with some in the U.K. and Puerto Rico. It’s important to distinguish that Realty Income is a REIT. It has a favorable tax situation but in return, it must generally distribute at least 90% of its taxable income each year… So, that can be great for income investors and also over time, it can pass along inflation increases to its clients.
If you’ve subscribed to my YouTube channel and seen my recent videos, this next dividend inflation stock shouldn’t come as a surprise…
1. Verizon (NYSE: VZ)
Dividend Yield: 4.46%
Payout Ratio: 58%
PE Ratio: 13
Verizon is another household name and it’s a solid inflation protection stock, as well as a defensive play. It generates most of its revenue from telecom services and many of the phone and data plans are last to go during tough times. The company’s steady cashflows have allowed it to reward shareholders handsomely.
Verizon is easily on the top of this list. Of course, it’s not risk-free, same with the other stocks on this list. Although, Warren Buffett has given a strong vote of confidence in Verizon as an investment. To learn how you can buy in at a better price than Warren Buffett, check out my recent video here: Berkshire Hathaway Verizon Stock.
If you’d like to see more investing opportunities like these inflation-proof dividend stocks, please let me know in the comments… Or let me know if you have any questions.