3 dividend ideas to protect your portfolio against inflation

Amid widespread talk of surging inflation – including the Federal Reserve’s recognition last week that it is hotter than expected – dividend stocks may offer a good hedge against rising prices.

Indeed, with the pandemic under control in the United States and elsewhere, many companies can increase their dividends each year faster than the rate of inflation.

But it’s not as easy as picking any old dividend payer. Chris Senyek, chief investment strategist at Wolfe Research, says dividend investors need to be nimble and consider different strategies, depending on their time horizon. “There is a rotation of strategies depending on what you think is going to happen,” he says. Barron, indicating that the Fed, inflation and higher interest rates are macroeconomic factors to consider.

Notes: Prices and returns as of June 15th.

Sources: Wolfe Research; FactSet

One option is to overcome this potentially volatile period in the markets with stocks that constantly increase their dividends, such as those in the S&P 500 Dividend Aristocrats Index. The aristocrats have paid a higher dividend for at least 25 consecutive years.

Another option would be to increase the range of risks. Senyek points out that “the return is always very cheap,” referring to higher-yielding stocks, or those of the top 20% of the largest US companies by market capitalization. “This makes the sector overall very attractive compared to other areas of the market.”

Consider that high yielding US stocks have recently traded about a 30% discount to the overall market, compared to an average discount of around 15% since the late 1980s, according to Wolfe Research. In detail, high-yielding stocks are cheap relative to their own valuation histories, except in the consumer discretionary and materials sectors, according to the company.

Going forward, Senyek highlights three strategies that might make sense, depending on the investment context.

One is a risk-free stock rotation, in which case the market pulls back due to concerns about inflation and other headwinds. In this scenario, he favors companies with a history of consistent increases in dividends.

These include


(ticker: MCD),



Coca Cola








Johnson & johnson

(JNJ), and


(MMM). These companies, all

S&P 500

Dividend Aristocrats, are more defensive games and offer returns in the range of 2% to 3%, well above the recent 1.5% of the 10-year US Treasury note.

Another scenario to consider: the market sees inflation as a temporary concern and central banks are keeping rates low. Under these circumstances, Senyek would favor stocks that combine high dividend growth with high free cash flow returns.

These include financial companies such as


(C) and

Goldman Sachs

(GS), with

UnitedHealth Group

(UNH), and

Bristol Myers Squibb


The third possibility is that long-term interest rates rise slowly, but not because of an inflationary alert. “Value is likely to drive the market higher” in this scenario, he notes, adding that many high yielding stocks tend to value.

This favors dividend-paying stocks like


(T), although it is expected to reduce its disbursements next year by selling the assets of WarnerMedia,

Williams Cos.

(WMB), and

Altria Group


Senyek adds that high yield stocks have “followed value stocks in general very closely.” the

Russell 1000 Value Index

reported around 17% this year, roughly double its growth counterpart.

Looking further, Senyek adds that “if you had only one long-term dividend theme, it would be consistent raisers for a buy and hold portfolio,” like Dividend Aristocrats. For investors who don’t have the time or inclination to trade stocks and switch between strategies, this is probably the best option in these uncertain times.

A rock solid dividend

Prudential financial‘s

The stock (PRU) was recently trading 4.4%, offering an attractive return but falling significantly from its trading level in recent years as the stock price has surged over the past 12 months.

Yet the dividend remains a key part of the insurance and asset management company’s return on capital priorities, CEO Charlie Lowrey said. Barron in a recent interview.

The dividend “is something you don’t play with,” he says, adding that he’s committed to keeping the payments coming and going up.

The company cut its dividend during the 2008 financial crisis, but has increased it every year since 2009. In February, the board of directors declared a quarterly dividend of $ 1.15 per share, up nearly 5% from $ 1.10.

Share buybacks, on the other hand, are more discretionary than dividends, Lowrey says. The company cut buybacks last year during the pandemic as a precautionary measure, although it kept its dividend at $ 1.10 per share after raising it to that level as the pandemic was just starting to hit markets. United States in March 2020.

“We’ve always used buybacks as something that we can increase or decrease, as needed,” says Lowrey, a long-time Prudential employee who became CEO in 2018. “If you look at distributions to shareholders over the course of over the past five years, it’s been roughly equal between dividends and share buybacks.

Well, isn’t that special?

Asset manager

Price T. Rowe

(TROW) is part of the S&P 500 Dividend Aristocrat Index, having increased its regular quarterly dividend most recently in March by 20% to $ 1.08 per share, making 2021 its 35th consecutive year of higher payouts.

To celebrate the milestone, intentionally or unintentionally, investors are getting special treatment: The company said last week that it will pay a special dividend of $ 3 per share, payable July 7 to shareholders of record at the close of business on June 25. .

Write to Lawrence C. Strauss at [email protected]

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