Investors looking to protect their portfolio against the highest inflation in decades can look beyond just the textbook hedges of hard assets. The consumer price index for February rose 7.9% from a year ago, the highest level since January 1982. Typical inflation hedges are physical assets such as commodities and real estate, as rising prices boost the value of those holdings usually. But stocks with rising dividends can provide consistent and growing income in an inflationary environment, said five-star fund manager Kevin Simpson. A dividend is a regular payout of a portion of a company's profits to its shareholders. "A real hedge against inflation is something that's going to increase cash flow over time," the Capital Wealth Planning founder and chief investment officer said. "Dividend growth really, truly is an inflation hedge." To identify dividend growth, investors can look at how much company's payout rises over a period of time, such as five years. "From an inflation standpoint, if you don't have a dividend that's increasing, you're going to lose purchasing power," Simpson said. While a history of raising dividends does not automatically mean a company will continue to do so, the track record is a good approximation, according to Simpson. "If they have a tendency to do it, as long as they continue to perform well as a company, then you would expect that dividend to continue to increase over time," Simpson said. As such, investors should also evaluate a company's balance sheet and earnings performance, according to Simpson. "It's just as important to make sure that the companies have earnings growth," Simpson said. "You want to make sure they can afford to pay the dividend." Newmont is a name Simpson likes to meet the moment. The mining company's dividend has a five-year compound annual growth rate of 77.5%. Newmont's dividend yield is currently 2.8%. McDonald's is another stock Simpson highlighted. The fast-food giant has a dividend yield of 2.3% and its dividend five-year CAGR is 7.8%. Simpson also likes Goldman Sachs . The bank stands to benefit from the rising interest rate environment, but also has strong dividend growth. Goldman currently has a 2.4% dividend yield and its dividend has grown at a five-year CAGR of 20.1%. Dividend growth screen CNBC Pro screened the S & P 500 for stocks with dividend growth and a strong balance sheet. We looked for companies that have increased their dividend in at least four of the last five years, with a yield higher than the S & P 500's 1.37% dividend yield, and a debt-to-capital ratio of less than 60%. (Source: FactSet. As of March 28, 2022.) Financials, energy and industrial names feature heavily on CNBC Pro's screen. Newmont, one of Simpson's picks, also makes an appearance. Other stocks on CNBC Pro's list include Devon Energy , Target and Tyson Foods .
Traders work on the floor of the New York Stock Exchange (NYSE) on March 28, 2022 in New York City. Following a positive week for stocks, the Dow Industrial Average was down over 100 points in morning trading.
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Investors looking to protect their portfolio against the highest inflation in decades can look beyond just the textbook hedges of hard assets.