Five dividend growth stocks to get through high inflation

Published Wed, Oct 5 20227:49 PM EDTUpdated Thu, Oct 6 20226:34 AM EDT

With the market still tumultuous as investors react to recessionary concerns, one investor recommends a plain-yet-trusted move: high-dividend growth stocks. Wednesday brought choppy waters as the three major averages slipped, recovered, and then ultimately ended the session with small losses. It marked a turn from two days of a relief rally that came earlier in the week. Investors remain unnerved as the Federal Reserve raises interest rates in an attempt to temper inflation, raising concerns of a recession on the horizon. In response to the rocky market, Kevin Simpson, chief investment officer of Capital Wealth Planning, selected five stocks that he sees as hedging against inflation through growing dividends. Simpson said these stocks have the earnings to back up their dividends, so they aren't companies promising a return to investors they can't actually provide. Free cash flow, earnings and earnings before interest, taxes, depreciation and amortization, known as EBITDA, are some of the major indicators he looks at to make this judgment about a company. These names also post strong compound annual growth, he said, meaning they have not just dividends, but they are growing each year. A steady play that's becoming exciting Though some market participants view this type of play as "boring," he said, dividends are an important place to look because they ensure a return for investors who hold, even in periods of market downturns. "When you focus on fundamentals and valuations, you can be somewhat less concerned about the noise and the big macro picture in the background," Simpson said. "If you invest in dividend growth stocks to help combat inflation, at the very least you're insured to get paid something while you wait for better times or for economic conditions to improve." Among the stocks on the list is fast-food titan McDonald's with a dividend yield of 2.3%. He said McDonald's not only posts data that points to increasing dividends it can back, but the company's investment in real estate can help an investor further diversify a portfolio. Devon Energy , one of the winners in the market benefiting from fluctuating oil prices, is also among Simpson's picks. The stock has the highest yield among the names he's highlighted at 6.75%. Two health care companies, Merck & Co. and UnitedHealth Group , are both included. Like consumer staples, he said these stocks are especially smart because people will always need health care, regardless of the condition of the broader economy. RBC also spotlighted UnitedHealth Group as a stock that can weather the current macro climate . Simpson said choosing companies with high growth dividends and the earnings to back them up is always a smart play. "Investing in 2022 is different than the way we've invested," Simpson said. "For the past 10 years or so, dividend-paying stocks may not have been the most exciting place to invest. But for those of us who practice active management, we know all too well sometimes boring can be quite good."