As prices rise at the fastest pace in 40 years, the impact is evident on every trip to the grocery store or gas station.
The effect of inflation on investors’ wealth is much less noticeable.
Inflation is an invisible leak in an investor’s purchasing power. At current levels – in May, the Consumer Price Index rose by 8.6% over the previous year – investors would need a 7% to 8% return just to maintain their wealth.
Most stocks can not offer this level of return consistently. However, some strong high-yield dividend stocks may come close to this percentage. Here are three that could potentially outperform inflation in 2022.
BHP Group (BHP)
The current wave of inflation is largely driven by commodities. Everything from copper to gas is traded at historically high levels.
The Melbourne-based BHP Group is the largest miner and producer of these commodities. The stock has more than doubled since the 2020 crash due to the pandemic.
However, earnings have outpaced the stock and dividends have risen. This means that BHP now offers a dividend yield of 12% per share.
BHP dividend payment is higher than inflation. Meanwhile, its underlying activity is linked to cost of living, making it a potentially effective hedge against rising prices.
Altria Group (MO)
Winners and losers during the recession are determined by the strength of prices.
Companies that can not raise prices to customers face margin squeeze. However, companies that can raise prices without affecting demand can pass on the rising costs to their customers.
The tobacco industry belongs to the last category. Cigarettes are unfortunately addictive, so smokers can count on paying for their repair even when prices are rising.
This is why tobacco giants like Altria can maintain profit margins and expand cash flow.
Altria has been paying a steady dividend for more than 50 years. Currently, the stock offers an impressive dividend yield of 7.95%.
The company may be able to maintain (or even extend) this payment in the face of rising inflation.
Enbridge Ltd. (ENB)
Energy companies are a classic example of hedging inflation. That said, the price of crude oil is too volatile to predict. Thus, oil reserves can be unreliable.
An alternative is an energy infrastructure company like Enbridge. This Canadian giant owns and operates the largest oil and gas pipeline network in North America.
This network has recently expanded in anticipation of greater demand across the continent. The company is also involved in the construction of terminal pipe exports, as the United States increases energy exports to Europe.
The stock offers a dividend yield of 6.5%, which is just below inflation. However, management expects this dividend to increase by 5% to 7% each year.
If these goals are met, Enbridge’s overall return could be much higher than the rate of inflation.
What to read next
This article provides information only and should not be construed as advice. It is provided without any guarantee.