Investor Alert

Deep Dive

Philip van Doorn

July 17, 2021, 10:40 a.m. EDT

19 dividend stocks to help you combat inflation

By Philip van Doorn

How can you avoid inflation, or at least make up for it?

Consumers and investors may be alarmed by rising prices. But a combination of prudent spending and investing can help these overlapping groups of people get through a period of uncertainty brought about by pent-up demand and supply shortages.

Below are two lists of 19 dividend stocks with attractive yields — companies that are expected to have plenty of cash flow to cover dividend increases or other actions that may be good for shareholders, including stock repurchases and business expansion.

The consumer price index rose by 0.9% in only one month — June — the largest increase since 2008. Jeffry Bartash points out that about a third of the overall price increases came from used-vehicle prices . For the 12 months through June, used car and truck prices were up 45%, according to the Bureau of Labor Statistics . It’s easy to say that you shouldn’t buy a car or truck this year. The incredible demand for used vehicles has led to a shortage for many of the most popular new ones, which means dealers will be less likely to haggle.

Of course you might be in a pickle and need to get another car or truck at the worst time, but maybe you can make a modest selection this time. You might also delay a plan to sell your home and move into a bigger one, considering that every other national housing boom you have ever witnessed has eventually cooled. In other words, it is possible some of your big spending plans can be curbed or delayed.

Two dividend stock screens

What do you want from a dividend stock? The most obvious answer is “income,” but what may be more important is that the dividend increases over time. That’s how you stay ahead of inflation. Even when official inflation figures are low, your personal inflation can be considerable, depending on your circumstances. Or you may need investment income to replace part of your working income when you retire.

Here’s a recent list of the 30 stocks in the S&P 500 index whose dividends increased the most over the past five years . Their dividend yields may not have been very high to begin with, but if you had held them for five years, the yields on your five-year-old shares would have grown significantly.

For this new screen, we took a different approach to focus more on higher current dividend yields. Beginning with the S&P Composite 1500 Index (made up of the S&P 500 (S&P:SPX) , the S&P Mid Cap 400 Index (PSE:MID) and the S&P Small Cap 600 Index (S&P:SML) ), we started with stocks with dividend yields of at least 4.26% — three times the 1.42% yield on 10-year U.S. Treasury notes on July 13.

Then we looked at free cash flow yields. A company’s free cash flow is its remaining cash flow after planned capital expenditures. It can be used to increase dividends, buy back stock, pay down debt, business expansion or fund acquisitions. A free cash flow yield that is higher than the dividend yield can provide investors with some comfort that a company is unlikely to cut its dividend and maybe be in a position to increase it.

A trailing free cash flow yield can be calculated by dividing the past four quarters’ free cash flow per share by the current share price. If available, consensus estimates for the next 12 months can be used to calculate a forward FCF yield. If the FCF yield is above the current dividend yield, there is free cash flow “headroom.” (The screen below only includes companies for which forward FCF estimates were available from FactSet.)

Financial companies were excluded from the screen, as FCF yield analysis isn’t appropriate for the group. Companies with fewer than five analysts polled for FactSet’s estimates were also excluded. For real estate investment trusts, funds from operations (FFO) is the industry standard for gauging dividend-paying ability. So there is a separate screen for that group below.

Starting with the S&P Composite 1500, here are the eight stocks that made the cut, with dividend yields of at least 4.26%, positive forward and trailing FCF “headroom” and no dividend cuts over the past three years, according to data provided by FactSet. The list is sorted by dividend yield:

Company Dividend yield Forward FCF yield Forward “headroom” Trailing FCF yield Trailing “headroom”
Williams Cos. Inc. (NYS:WMB) 6.26% 9.08% 2.82% 7.53% 1.27%
B&G Foods Inc. (NYS:BGS) 6.20% 11.44% 5.24% 11.00% 4.80%
Kinder Morgan Inc. Class P (NYS:KMI) 5.91% 9.86% 3.95% 9.98% 4.07%
H&R Block Inc. (NYS:HRB) 4.57% 14.83% 10.25% 13.28% 8.71%
Verizon Communications Inc. (NYS:VZ) 4.47% 7.84% 3.37% 10.86% 6.38%
Dow Inc. (NYS:DOW) 4.47% 9.66% 5.19% 7.64% 3.18%
LyondellBasell Industries NV (NYS:LYB) 4.43% 10.82% 6.39% 5.30% 0.87%
AbbVie Inc. (NYS:ABBV) 4.41% 10.19% 5.77% 8.61% 4.20%
Source: FactSet

Click on the tickers for more about each company, including news, business profiles, price ratios and ratings.

In case you are wondering about AT&T Inc. (NYS:T) — known for its high dividend yield over the long term — the company hasn’t yet announced a dividend cut but said in March that as part of its plan to divest its WarnerMedia properties, it was going to “ resize ” the dividend, taking it down to a payout ratio of about 40% to 43% of free cash flow.

We don’t have the figures to predict how high the slimmed-down company’s dividend might be after AT&T’s deals are completed, but the yield on the shares as of the close on July 13 was 7.36%, while its forward FCF yield was 11.79%. Ordinarily that would appear to be plenty of headroom to support the dividend. But it implies a payout ratio of 62%, which is much higher than the ratio of the current yield to the forward FCF yield.


For a second screen of real estate investment trusts, we used funds from operations (FFO) instead of free cash flow. FFO adds depreciation on real estate to earnings and nets out gains or losses on the sale of property. Here are the 10 highest-yielding REITs in the S&P Composite 1500 with positive forward and trailing FFO “headroom” and no dividend cuts over the past three years, according to data provided by FactSet:

REIT Dividend yield Forward FFO yield Forward “headroom” Trailing FFO yield Trailing “headroom”
Omega Healthcare Investors Inc. (NYS:OHI) 7.27% 9.08% 1.81% 8.93% 1.65%
LTC Properties Inc. (NYS:LTC) 5.88% 7.00% 1.12% 5.91% 0.03%
Medical Properties Trust Inc. (NYS:MPW) 5.58% 8.91% 3.33% 8.07% 2.49%
Brandywine Realty Trust (NYS:BDN) 5.44% 9.98% 4.55% 10.01% 4.58%
Physicians Realty Trust (NYS:DOC) 4.99% 6.02% 1.03% 5.75% 0.76%
Industrial Logistics Properties Trust 4.97% 7.10% 2.14% 7.00% 2.03%
Getty Realty Corp. (NYS:GTY) 4.91% 6.16% 1.26% 7.14% 2.23%
Easterly Government Properties Inc. (NYS:DEA) 4.83% 6.14% 1.31% 5.95% 1.12%
SL Green Realty Corp. (NYS:SLG) 4.71% 8.73% 4.03% 8.89% 4.18%
CareTrust REIT Inc. (NAS:CTRE) 4.48% 6.49% 2.00% 5.92% 1.44%
Source: FactSet

As always, you should do your own research before considering any stock for investment. For the REITs, it is especially important to consider a company’s investment focus. Whether it is retail, office property, health-care property or another area, each has its own opportunities and challenges.

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