U.S. stocks rallied on the back of a weaker-than-expected inflation report in October. With prices finally starting to stabilize, some of the country’s top Wall Street firms are optimistic that the worst is over. However, not everyone holds that opinion. While the market may be enjoying a brief respite from inflation fears, many believe there is still the potential for substantial volatility in the upcoming months. Therefore, investing in dividend stocks in this inflationary environment seems like the best course of action for investors at this time.
Despite the recent volatility in the stock market, dividend stocks remain attractive for those looking to generate passive income. Unlike other stocks, dividend stocks provide a steady stream of income that is generally less-impacted by short-term fluctuations in the macro environment. Additionally, dividend stocks tend to be less-volatile than the overall market, providing a measure of stability in uncertain times.
For these reasons, dividend stocks are an ideal investment for those who want to protect their assets amidst an inflationary environment. Here are seven top options I think investors should consider.
International Business Machines
Brookfield Renewable Partners
The Southern Company
International Business Machines (IBM)
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International Business Machines (NYSE:IBM) has been an afterthought in the tech space for the past decade. Big Blue failed to evolve from its legacy hardware business, missing major technological trends. However, the new-look IBM seems to have its swagger back, and is poised for robust gains ahead.
IBM is focusing on its hybrid cloud and AI solutions businesses, which continue to impress in each quarterly report. The firm is evolving into a data platform and cloud provider, and is positioned to ride the strong growth trends in the hybrid cloud space to new highs. Recent results have shown as much, with the company making massive strides in its software and hybrid cloud business lines.
Revenue growth for the year is already up an incredible 42%. This comes during a year where many tech stalwarts have stumbled. Layer that up with an attractive valuation and a dividend yield of roughly 4.5%, and you have a dividend stock that should be on the buy list right now.
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Shares of oil and gas giant Chevron (NYSE:CVX) have taken a hit following the midterm elections. Market fears seem overblown at this point, as any minor regulatory changes shouldn’t impact the bottom lines of major energy giants.
While the recent sell-off may have spooked some investors, those with a long-term perspective can view this as an opportunity to buy a high-quality dividend stock at a discount. Chevron offers a healthy 3.1% yield with a fantastic share buy back program as well.
With Russia’s invasion of Ukraine, there is a considerable global oil and natural gas supply shortage. This key development makes it harder for continental Europe to power itself, throwing the spotlight on Chevron and its peers to cover the shortfall. Chevron has already had a stellar year on the back of higher oil prices, and will continue to shine as global energy demand remains strong.
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Prudential (NYSE:PRU) is a great choice for dividend investors looking for stability and growth potential. The insurer has been in business for over 140 years and has weathered many economic downturns.
Today, Prudential is one of the largest life insurers in the world, with operations in more than 40 countries. The company’s strong financials are underpinned by a well-diversified business model, which provides a degree of protection from economic volatility. Moreover, PRU stock boasts an alluring dividend yield of over 4.4%.
In the first half of the year, Prudential’s net cash soared to roughly $1.5 billion. I think the company’s cash position provides a strong moat for the companies in uncertain times. Moreover, this cash position is advantageous, as it allows the company to take advantage of meaningfully higher interest rates as it invests cash from annuities and premiums in fixed-income instruments.
Thus, Prudential is an attractive dividend stock with a robust business model to weather the current economic pressures.
Brookfield Renewable Partners (BEP)
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Brookfield Renewable Partners (NYSE:BEP) is a leading global renewable energy company. Its mission is to create value by developing and operating a world-class renewable power portfolio.
Brookfield owns a diversified portfolio of clean energy assets that provides stable, long-term cash flow and attractive returns to its investors. With its colossal addressable market, reliable cash flow growth, and healthy dividend increases, it remains the best bet in the renewable energy space.
The firm boasts an excellent track record of superb margin growth. Some of its biggest catalysts include government incentives for clean energy and rapidly-increasing electricity demand. Of late, surging electricity prices have helped the business offset rising commodity costs. Moreover, it generates the bulk of its sales from 14-year contracts, adding substantial stability to its business outlook.
The Southern Company (SO)
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Utility companies are often seen as a safe investment, and for good reason. They tend to be relatively stable, even during periods economic turmoil, offering solid dividends. The Southern Company (NYSE:SO) is a great example of a utility stock that is likely to weather any market storms. The company has a strong history of paying dividends, and its revenue tends to be fairly consistent regardless of market conditions.
Like other electric utilities, The Southern Company operates as a quasi-monopoly with a low risk of bankruptcy and stable cash flows. Moreover, its top and bottom lines are both expected to surge, given the electrification of transportation and the scope to enter into more profitable business areas. In addition to providing electricity and gas to its consumers, the company also offers fiber optic telecom services. Hence, its diversified offerings will help the company maintain its top-notch dividend profile.
Realty Income (O)
Realty Income (NYSE:O) is a real estate investment trust that focuses on acquiring net leased commercial properties. Its operating strategy is pretty simple – the company buys properties and then leases them to tenants under long-term agreements. This provides consistent cash flow, allowing the company to pay regular dividends to shareholders.
The firm boasts a spectacular track record of profitability which has helped provide its investors with a strong, consistent yield over the years.
Realty’s dividend profile is enviable, to say the least, given it’s grown its payouts for over 25 consecutive years. Moreover, the odds suggest this REIT will effectively make it through the current downturn without any meaningful impact to its business model. Therefore, Realty Income is a high-quality REIT worth investing in at current levels.
V.F. Corporation (VFC)
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V.F. Corporation (NYSE:VFC) is a leading apparel company with a portfolio of more than a dozen different brands. Its best known for its leisure and outdoor apparel, which includes iconic brands such as Vans, The North Face, Dickies, and Timberland.
In recent years, the company has been focused on expanding its global reach and growing its online presence. As a result, V.F. today is a truly global company with a strong presence in both developed and emerging markets.
Though it operates in a highly competitive sector, V.F.’s unique approach effectively reduces its risks. Its large stable of brands ensures the company is always on-trend and gaining customer traction. Looking ahead, V.F. is well positioned to continue its growth trajectory thanks to its strong portfolio of brands and its focus on innovation and expansion. Moreover, it’s part of an elite group of companies that have achieved Dividend King status (companies that have raised their annual payouts for 50 or more consecutive years).
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.
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