Worried about inflation? Investment banks advise buying these dividend stocks

Published Fri, Apr 15 20221:51 AM EDT

Consumer prices have shot up in many countries, and investors could do well looking at stocks that pay out good dividends, Morgan Stanley and Jefferies' analysts say. As a way to beat that hot inflation, the investment banks picked some high dividend yielding stocks, those with a strong track record of increasing dividends and those least likely to announce dividend cuts. High inflation and monetary tightening in the second quarter would favor an income strategy, Morgan Stanley said. "We expect the market to remain highly volatile, while the negative US real yields will continue to favor stocks with strong cash flows and stable dividend payout history to outperform," analysts at the Wall Street bank said in an April 6 report. Morgan Stanley said its screen of "enhanced dividend" stocks outperformed the MSCI Asia-Pacific ex-Japan index and MSCI Asia-Pacific ex-Japan High Dividend index by 9.1% and 0.6% respectively, in the first quarter. "Defensiveness with secure cash dividend payout was particularly valued by investors. Inflation shock also induced investors to follow cash income," the bank said. Morgan Stanley picks Morgan Stanley picked Asian dividend stocks with balance sheet "resilience" as well as business stability over the long term. The bank said these top "enhanced dividend" stocks were selected on a 12-month forward-looking basis of being the least likely to announce dividend cuts, and were likely to outperform the MSCI Asia-Pacific ex-Japan High Dividend index. China State Construction Engineering GAIL , an Indian natural gas firm Industrial Bank in China Longfor Group , a Chinese investment holding company Link Real Estate Investment Trust PetroChina , a Chinese oil and gas firm United Microelectronics Corporation , Taiwanese semiconductor firm Hana Financial Group in South Korea Rio Tinto , an Australian miner WH Group , a Chinese pork company Jefferies picks Jefferies chose to focus on Japan's high-yield dividend stocks based on their historical performance. "Historically, Japan high-yield basket has been the best inflation-hedge globally and a beneficiary of rising bond yields," it said in a March 29 note. For 2022, the bank is playing the following themes such as stocks with growth at a "reasonable" yield, as well as high-yield "cash machines" to combat the stagflation risk. Japan stocks with growth at a reasonable yield: Jefferies says long-term investors should focus on companies offering the best of both worlds in terms of yield and growth. It picked stocks which have high growth – with the EPS CAGR that's more than 10%, and high yield – with 12-month forward dividend yield above the regional median. EPS CAGR is the the compound annual growth rate, or growth rate, in earnings per share. It's an indication of whether companies have been consistent in growing their earnings over the long run. Here are Jefferies' top 10 stocks, sorted by market capitalization. Toyota Motor Tokyo Electron Honda Motor Retail group Seven & I Holdings Electronic components manufacturer Murata Manufacturing Astellas Pharma IT company Fujitsu Equipment manufacturer Komatsu Toyota Industries , a Japanese machine maker Shionogi , a pharmaceutical company Japan 'dividend growers': These are stocks with a strong track record of increasing dividends — a symbol of management's commitment to enhance shareholder returns, according to Jefferies. These are the top 10 stocks, sorted by market capitalization. Nippon Telegraph KDDI Shin-Etsu Chemical Chugai Pharmaceutical Sumitomo Mitsui Financial Mitsui & Co Murata Manufacturing Astellas Pharma Fujitsu Fujifilm Holdings

The Chinese and Hong Kong flags flutter outside the Exchange Square complex in Hong Kong on Feb. 16, 2021.

Zhang Wei | China News Service via Getty Images

Consumer prices have shot up in many countries, and investors could do well looking at stocks that pay out good dividends, Morgan Stanley and Jefferies' analysts say.