Analysts recommend these nine dividend stocks to protect against inflation.
The U.S. consumer price index rose 8.3% year over year in April, and inflation remains near its highest levels in 40 years. Supply chain disruptions and booming economic reopening demand have sent prices soaring, pressuring American budgets and sending costs persistently higher for certain economic sectors. Inflation can completely negate fixed-income returns, but dividend stocks in inflation-resistant sectors such as energy, consumer staples, real estate and materials can be an excellent way for investors to offset the negative impacts of inflation. Here are nine dividend stocks to buy with at least 2% yields that can help investors combat inflation, according to CFRA analysts.
Exxon Mobil Corp. (ticker: XOM)
Exxon Mobil is the largest U.S. oil and gas major. Energy stocks have historically performed well during periods of elevated inflation because oil, gas, coal and refined petroleum product prices all increase, boosting energy sector profit margins. Not surprisingly, Exxon shares are up 52.1% so far this year on a total-return basis, which includes dividends, and analyst Stewart Glickman says there’s more upside ahead. Glickman says development of oil and gas properties offshore in Africa and in the U.S. Permian Basin will help Exxon continue its bullish momentum in the near term. CFRA has a “buy” rating and $102 price target for XOM stock, which closed at $91.14 on May 19.
Dividend yield: 3.9%
Procter & Gamble Co. (PG)
Procter & Gamble produces household consumer products and owns a number of popular brands, including Pampers, Tide and Gillette. Consumer staples stocks have historically performed relatively well when inflation is high because shoppers will dial back on discretionary spending well before they cut back on buying things like diapers or laundry detergent. Analyst Arun Sundaram says Procter has a best-in-class supply chain and had positive sales and margin momentum even before the pandemic hit in 2020. Sundaram says Procter’s market share gains will prove sticky, even amid inflationary pressures. CFRA has a “buy” rating and $180 price target for PG stock, which closed at $141.70 on May 19.
Dividend yield: 2.5%
Coca-Cola Co. (KO)
Coca-Cola is the world’s largest non-alcoholic beverage company and is exactly the type of consumer staples stock that holds up relatively well when inflation rises. In fact, total return on Coca-Cola shares is 2.1% in 2022 through May 19, while major indexes are down double digits. Analyst Garrett Nelson says the resolution of a pending $12 billion tax case could be a bullish catalyst for Coca-Cola, and he is projecting 11% revenue growth for the company this year. Nelson says pricing improvements and a rebound in on-premise sales will continue Coca-Cola’s strong underlying momentum in coming quarters. CFRA has a “buy” rating and $72 price target for KO stock, which closed at $60 on May 19.
Dividend yield: 2.9%
PepsiCo Inc. (PEP)
PepsiCo is another leading global beverage company and the parent of snack subsidiary Frito-Lay. Like Coca-Cola, PepsiCo shares have beaten the S&P in 2022, falling just 6.6% on a total-return basis through May 19, compared with the benchmark index’s 18.2% decline. Nelson says PepsiCo is a defensive, blue-chip investment with a strong balance sheet and a stable and predictable earnings outlook. In the near term, Nelson says, the beverage market should improve in 2022. In the longer term, international expansion and Frito-Lay snacks will be PepsiCo’s two primary sales growth drivers, he says, with healthier snacks and drink offerings differentiating its portfolio. CFRA has a “buy” rating and $200 price target for PEP stock, which closed at $161.20 on May 19.
Dividend yield: 2.8%
Philip Morris International Inc. (PM)
Philip Morris is the largest publicly traded tobacco company. Many tobacco users are already well aware of how difficult quitting cigarettes or other nicotine products is, even if they want to, so Philip Morris customers likely won’t be scared off by rising prices. Nelson says Philip Morris shares are attractively valued and offer investors a compelling income opportunity. While global cigarette volumes may be in secular decline, Nelson says pricing gains and further penetration of emerging markets should help support Philip Morris’ revenues in coming years. CFRA has a “buy” rating and $120 price target for PM stock, which closed at $100.50 on May 19.
Dividend yield: 4.7%
Prologis Inc. (PLD)
Real estate is a popular inflation hedge, and many real estate stocks and real estate investment trusts, or REITs, pay extremely high dividend yields. Prologis is an industrial REIT that specializes in logistics real estate, such as property in major port markets used for global trade. Analyst Michael Elliott says demand for Prologis’ port logistics centers is strong, and competition is limited by difficult-to-obtain zoning permits. Elliott says Prologis properties can support $28 billion in new development starts in a market with a tight supply of prime land. CFRA has a “buy” rating and $185 price target for PLD stock, which closed at $119.72 on May 19.
Dividend yield: 2.6%
EOG Resources Inc. (EOG)
EOG Resources is one of the largest public independent oil and gas exploration and production companies, specializing in onshore North American natural gas production. Like many other oil and gas stocks, EOG shares are on fire in 2022, with a 40% total return through May 19, but Glickman says there’s more upside ahead. He says EOG has a pristine balance sheet and an attractive debt-to-capital ratio of just 4.8%. In the near term, Glickman says EOG’s Dorado gas discovery in the Gulf Coast region could be a positive catalyst for the stock. CFRA has a “buy” rating and $152 price target for EOG stock, which closed at $121.70 on May 19.
Dividend yield: 2.5%
Pioneer Natural Resources Co. (PXD)
Pioneer Natural Resources is a U.S. oil and natural gas exploration and production company focused primarily on the Permian Basin in West Texas. Pioneer shares have a 48.4% total return this year through May 19 as gas prices surge. Glickman is projecting Pioneer’s earnings per share will more than triple in 2022 to $31.02. He is also forecasting nearly $9 billion in 2022 free cash flow, more than triple 2021 levels. Pioneer has very little debt, and Glickman says the company’s modest 5% medium-term production growth target demonstrates its commitment to spending discipline. CFRA has a “buy” rating and $295 price target for PXD stock, which closed at $265.42 on May 19.
Dividend yield: 4.7%
Public Storage (PSA)
Public Storage is a specialty REIT that is the largest owner of self-storage facilities in the U.S. Elliott says Public Storage has a diverse, high-quality portfolio that should benefit from improving industry trends. Self-storage demand is currently outpacing supply, a dynamic that Elliott says will continue throughout 2022 and create pricing leverage for Public Storage. He says the company can raise rental prices in the mid-to-high teens percentage range, and its ability to raise rates quickly gives it flexibility in an inflationary environment. CFRA has a “buy” rating and $380 price target for PSA stock, which closed at $309.77 on May 19.
Dividend yield: 2.6%
9 best dividend stocks to buy for inflation protection:
— Exxon Mobil Corp. (XOM)
— Procter & Gamble Co. (PG)
— Coca-Cola Co. (KO)
— PepsiCo Inc. (PEP)
— Philip Morris International Inc. (PM)
— Prologis Inc. (PLD)
— EOG Resources Inc. (EOG)
— Pioneer Natural Resources Co. (PXD)
— Public Storage (PSA)
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Update 05/20/22: This story was published at an earlier date and has been updated with new information.