10 Highest Dividend Stocks that Protect against Inflation

in Investing Trade by Travis — May 6, 2011 at 4:24 pm | 6 comments

• Tweet
• 
  
  

If you are nervous about the economy, stock market, or your finances in general, now might be a good time to look at re-balancing some of your longer term holdings, especially those in a retirement account.  With Quantitative Easing coming to an end, many questions marks still remain about how the economy will handle inflation, a stagnant housing market, and a possible rise in interest rates.  Further since volatility seems to bounce up and down so frequently the past couple years, now may be a good time to reevaluate your stock dividend holdings into something that can protect against inflation.  The highest dividend stocks often provide better yields and more protection against economic fluctuations.  Our top paying dividend stocks all have yields of greater than 3% (majority greater than 4%), lots of cash on hand, attractive debt to equity/cash ratios, and liquidity.  Any one or all of the following stocks could be added to your portfolio without a lot of stress:

1.) AZN – AstraZeneca.  The bio-pharmaceutical company currently has a forward dividend yield of 7.30%.  With lots of cash flow, nice looking debt to cash ratios, and a low P/E ratio compared to its closest competitors, AstraZenenca is an ideal high dividend stock for the next couple of years.  This is also the highest yielding dividend stock of the list.

2.) BMY -Bristol Myers Squibb.  Another bio-pharma company with an impressive balance sheet.  Currently the stock has a forward dividend yield of 4.60%.  Not the highest of the group, but with attractive products and, again, lots of cash, it is a good choice.  One thing to look out for if you want to be picky is the payout ratio.  The past dividend period, they paid out 67% of their earnings so one would not expect much yield growth from this stock.

3.) KMB – Kimberly Clark.  The large consumer staples company makes everything from Huggies to Kleenex.  With a forward dividend yield of 4.20%, the company provides a nice inflation hedge.  While it does not have quite the cash flow of the previous pharma companies, consumer staples always provide a nice defensive play in economic downturns.  Again, note a high payout ratio of 61.00%, but don’t let that deter you.

4.) LLY -  Eli Lilly.  This pharma stock has not been getting a lot of love lately but that should not matter for the longer term investor.  The stock has a forward dividend yield of 5.10% and the price of the stock is also providing a nice growth opportunity.  With plenty of cash both on hand and coming in on a quarterly basis, this one is a no brainer.  If the market continues higher, you should get some nice returns on the stock as well as the dividend.  On the flip side, a move lower, I would not expect the dividend to change and that will only increase the yield.

5.) MO -  Altria aka Phillip Morris.  Regardless of how you feel about buying into a cigarette company, the stock has great valuations and great yields.  Currently yielding 5.70%, the cigarette company has plenty of cash and continues to pay out dividends even through the worst economic times in 2008.  The stock and dividend aren’t going to move much, but that is exactly what you want in an inflation hedged stock.

6.) MRK – Merck.  Wait…another pharma company? Yup, people still buy drugs even during economic downturns and high inflation periods.  People gotta stay healthy, right?  Merck is currently yielding 4.30% withloads of cash on hand and is continuing to pump out positive quarters.  All very good signs for the stock and the dividend.

7.) NOC – Northrop Grumman.  Last time I checked we are still fighting wars in the Middle East.  Northrop Grumman is a huge defense and aerospace company and as long as we are fighting wars, the company will be making money.  While the company is not the highest dividend stock at 3.10%, the company only pays out 27.00% of its earnings.  Add to that, nice incoming cash flow every quarter and the stock could make for a potential yield increase if they decide to raise the dividend.  Always a good thing.

8.) PBCT – People’s United Financial.  The company just keeps turning out the dividend while keeping its stock price fairly consistent.  Currently yielding 4.60%, the stock is probably one of the safest plays in the banking sector.  While most banks are losing money and cutting their dividend, PBCT continues to make money and crank out a dividend.  The high payout ratio of 257% does throw up a red flag, however, they managed to get through 2008 while still paying out a dividend and continue to have positive cash flow.  I’m not worried.

9.) SCCO- Southern Copper.  With commodity prices continuing to rise, that will only benefit Southern Copper.  The stock has a forward dividend yield of 6.20% and lots of cash both in the bank and coming in on a quarterly basis.  The stock may be prone to economic swings and does have a high payout percentage at 94.00%.  If you are able to get the stock at a relatively good price, say around the $30-$33 range, I would not hesitate to buy some up.

10.) TOT – Total SA.  And we finally come to an energy company.  Total made a meager $208 billion, well meager compared to Exxon’s $365 billion, but who’s counting.  The company currently yields 4.30% and again has loads of cash on hand.  Further that with a low P/E for the sector and nice operating margins, Total is a very attractive play.  If energy prices continue to rise, Total will continue to increase its profits possibly leading to an increase in the dividend.

So there you have it.  The highest dividend stocks which can protect you against inflation and economic downturns.  If you are a long term investor these top paying dividend stocks are definitely worth looking into further.  Any other high dividend stocks that are good inflation plays?  Let us know below.

No related posts.

Tags: dividend investing retirement trade