2 High-Quality Dividend Stocks For Protection From Inflationary Pressures
2022.04.13 09:31
- Higher inflation eroding fixed income that investors generate from their portfolios
- In such a high-cost environment, it makes sense to buy dividend stocks that raise their payouts faster than the rate of inflation
- Home Depot has delivered, on average, 21% annual growth in payouts in the past 10 years
US consumer prices increased in March by the most since late 1981, underscoring the current painfully high cost of living. According to Labor Department data, the consumer price index jumped 8.5% from a year earlier, following a 7.9% annual gain in February.
Surging inflation is one of the biggest enemies for those who rely on capital investments as an income source. That is particularly relevant when most fixed-income assets yield significantly below the average price rise.
In such an environment, buying top-quality dividend stocks that raise their payouts faster than the inflation rate is the best way to go.
As equities hold high-risk levels, investors should brace for portfolio volatility. However, you can reduce some of those risks by focusing on high-quality stocks with solid balance sheets and a history of paying dividends.
Keeping this theme in mind, below we’ve short-listed two stocks that income investors could consider buying now. Each stock offers the potential for solid capital gains and substantial payout raises to counter the impact of higher prices.
1. Home Depot
Home improvement giant Home Depot (NYSE:HD) is an outstanding stock to keep in your portfolio to fight inflation and earn growing dividends. HD closed Tuesday at $306.29.
HD Weekly Chart
The Atlanta-based retailer has an impressive track record of boosting its payout much more quickly than the inflation rate. During the past 10 years, the home renovation giant has delivered, on average, 21% annual growth in payouts. The company has also sequentially delivered positive earnings reports.
With an annual dividend yield of 2.48%, the company offers a quarterly payout of $1.9 a share. And, with a manageable payout ratio of 42%, the dividend payout has much more room to grow, especially when Home Depot is benefiting from higher demand for its products amid the ongoing housing boom.
Last week, UBS included HD in its list of “high-quality” dividend-paying stocks that it says are unlikely to reduce payouts when risks to growth are rising. Its note adds:
“We have used our quantitative models to find stocks that are high quality compared to their peers, and that pay a dividend and are unlikely to cut it.”
In an Investing.com poll of 35 analysts, 25 currently rate the stock a buy, while providing a 12-month price target that implies a 21.58% upside potential.
HD Consensus Estimates
2. Apple
In this volatile economic environment, mega cap technology stocks have turned out to be a good bet due to their immense earnings capabilities and wide economic moat.
The iPhone maker Apple (NASDAQ:AAPL) is one such stock. AAPL is in a position to provide both income and capital growth to retirees for many years to come. Apple closed Tuesday at $167.66.
AAPL Weekly Chart
The Cupertino, California-based behemoth has incredible firepower to deal with global downturns and keep income-seeking investors happy. It’s one of the most cash-rich companies in the world. According to securities filings, the company’s cash pile (cash, cash equivalents, and marketable securities) currently stands at more than $200 billion as of Dec. 25.
Such power was visible in the company’s last earnings report when Apple comfortably topped analysts’ estimates.
The stock has what looks to be a tiny 0.53% dividend yield. But that shouldn’t be considered disappointing. The company is offering a powerful combination of increasing dividends and share buybacks with which to boost the total return for its investors. Over the past five years, Apple hiked its dividend by 10% each year. The company currently pays $0.22 a share for a quarterly payout.
Moreover, Apple has been the biggest re-purchaser of its shares among companies listed on the S&P 500. The smartphone, personal computer, and wearables maker spent $85.5 billion to repurchase shares and $14.5 billion on dividends in its fiscal 2021, which ended in September.
These factors make the company a consistently favorite pick among Wall Street analysts.
AAPL Consensus Estimates
In an Investing.com survey of 43 analysts, an impressive 37 rate Apple as a buy with the consensus 12-month price target that implies a 15.29% upside.
