Dividend Growth Stocks Can Be a Great Way to Combat Inflation
The dividend growth strategy is without a doubt one of the most popular approaches to investing. It involves buying and holding shares of quality dividend-paying companies that are increasing their cash flows enough each year to consistently boost their payouts to shareholders. A big reason why dividend growth investing has such a strong reputation among investors is that it actually works. Holding a diversified portfolio of companies that are increasing their payouts at a steady pace can help investors generate substantial wealth over the long term, particularly if they decide to reinvest the dividends into more shares over the years.
Dividend stocks always attract a fair share of buyers in almost any market environment, but this year these types of investments are more attractive than ever thanks to persistent inflation concerns. Finding assets that can help you fight inflation is certainly not easy thanks to how many questions there are about the economy and whether or not the Federal Reserve can get things under control quickly. That’s why we’ve put together the following list of 3 dividend growth stocks to help you fight inflation. Here are a few reasons why these companies stand out as great long-term buys.
FedEx Corporation (NYSE:FDX)
One particularly important detail about dividend growth investing is that it’s very important to select companies with strong business prospects and reliable free cash flow generation. That way, you can likely rely on them to continue rewarding long-term shareholders with increasing payouts. That’s a big reason why FedEx Corporation should be on your radar, especially since the stock has been hammered this year and could be a great buy-the-dip opportunity. FedEx is a blue-chip company that provides air express and ground package services to residences and businesses globally, along with truck freight and logistics services.
We know that FedEx is going to stay busy over the next decade thanks to e-commerce tailwinds, and the company’s massive international shipping network is both impressive and very difficult for competitors to imitate. While it's true that FedEx is dealing with higher employee-related costs in the short term, it’s hard to argue against adding shares of an industry-leading company at such an appealing valuation. FedEx currently trades at a 9.9 forward P/E ratio, and the company’s management recently bumped up its dividend by 15%, which are both great reasons to consider adding shares. The stock is down over 21% year-to-date, but according to MarketBeat’s consensus analyst estimates the stock has over 48% of upside from current levels given the $302.52 average price target, making this a very appealing option to consider.
AmerisourceBergen Corp (NYSE:ABC)
Investors obviously have a lot to think about this year thanks to all of the complicated factors that are occurring in the world, which is why keeping things simple can be a sound approach to markets at this time. Case in point – AmerisourceBergen has been one of the biggest outperformers in the market in 2022, is not going to be significantly impacted by the current geopolitical turmoil, and has continued to increase its forward guidance, which likely means that shares are set to continue trending higher. It’s one of the nation’s largest pharmaceutical distributors with over $210 billion in annual U.S. drug distribution revenue and a company that investors can likely bank on for continued dividend growth for years to come.
Investors likely recognize how massive the pharmaceutical industry is, and the fact that Amerisource is one of three huge companies operating as a pharmaceutical wholesale and distribution oligopoly is another strong selling point to consider. With a 10-year dividend growth rate (CAGR) of 13.9%, investors should certainly be compelled to park some capital in this leading company for the long term. The fact that it's in a sector that has dramatically outperformed the market this year makes it an even more intriguing option, so keep an eye out for pullbacks if you are interested in adding shares.
Kinder Morgan Inc (NYSE:KMI)
The energy sector has been nothing short of impressive this year, which makes a dividend growth stock like Kinder Morgan all the more attractive. It’s one of the largest energy transportation and storage companies in North America, which is important given the sanctions on Russia that are occurring at the moment. Whether it's transporting, storing, or processing natural gas, crude oil, natural gas liquids, and more, it’s safe to say that Kinder Morgan plays a key role in the economy and has a successful business model that should help investors feel confident that the dividend growth will continue.
The stock currently offers a 5.68% dividend yield and some analysts anticipate the resumption of a share buyback program this year, which are certainly strong reasons to consider adding shares. Investors should also be happy to hear that Kinder Morgan has paid down over $12 billion in debt since 2015, freeing up plenty of capital to support earnings and dividend growth going forward.
FedEx is a part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.
Before you consider FedEx, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and FedEx wasn't on the list.
While FedEx currently has a "Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.
Article by Sean Sechler, MarketBeat