5 Dividend Stocks to Beat Inflation and Rising Interest Rates


Dividend stocks are facing stiffer competition, thanks to a sharp spike in bond yields. A risk-free 10-year government bond recently yielded 3.7%, up from 1.63% at the start of 2021. That is well above the

S&P 500

dividend yield of 1.76% of the index, making bonds more attractive to income investors.

But now is not the time to give up dividends as a source of income. A healthy payout stream can diversify the income in your portfolio. And with annual consumer price inflation at 8.3%, dividend-growing stocks can sustain your income stream better than fixed-rate bonds.

“Dividend growers really protect you from rising rates and inflation because you get that growing revenue stream,” said Thomas Huber, manager of the $19 billion

T. Rowe Price Dividend Growth

fund (ticker: PRDGX).

Despite the Federal Reserve’s plans to keep raising interest rates and slowing the economy in its fight against inflation, companies with resilient earnings are increasing payouts. Even if earnings growth slows for those in the S&P 500, the index’s total payout should rise 10% this year, estimates Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. That would be the first double-digit increase in S&P 500 dividends since 2015.

Treasury inflation-protected bonds, or TIPS, meanwhile, don’t offer each protection. The

iShares TIPS Bond

exchange-traded fund (TIP) lost 11% in 2022, including interest payments.

Of course, stocks with rising dividends can also falter.


For example, (TGT) is a dividend “aristocrat,” a company that has been increasing its dividend for at least 25 years. Target has increased its payout for 51 consecutive years, including a 20% increase in June, to $3.60 year-over-year per share, delivering a 2.8% return at the share’s recent price of around $153.

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Company / Ticker Recent price Dividend Yield Market value (bil) YTD Return Latest Dividend Increase
Philip Morris International / PM $96.01 5.2% $148.8 3.7% 2.0%
Chevron / CVX 156.28 3.6 305.9 36.9 6.0
Marsh & McLennan / MMC 155.47 1.5 77.6 -9.6 10.0
Becton Dickinson / BDX 244.11 1.4 69.6 0.6 5.0
Elevance Health / ELV 475.47 1.1 114.1 3.4 13.0
Microsoft / MSFT 242.25 1.1 1800 -27.4 10.0

Note: data as of September 20

Sources: FactSet; Bloomberg

But investors have punished the stock, causing them to fall 34% this year. The retailer was caught with the wrong stock mix at a time of high inflation and changing consumer habits, says Michael Barclay, manager of the

Columbia Dividend Income

fund (LBSAX), which has eased its position in Target.

A larger participation in the portfolio is


(CVX). It returns 3.6% and has been a winner, with a gain of about 37%, including dividends, this year.

Oil stocks will not fare well if global demand for the commodity collapses once the war in Ukraine ends. A slowing global economy would also cool the outlook for crude oil. However, longtime Columbia fund manager Barclay thinks Chevron is looking resilient. “They are disciplined in their capital expenditures,” he says, adding that Chevron’s diversified business in the energy chain provides some stability.

Chevron raised its quarterly dividend in January by 6% to $1.42 per share. The annual payout is expected to be $5.97 per share in 2023, up 5%, with a payout ratio of 35% of earnings.

More attractive because of the yield is:

Philip Morris International

(P.M). Shares of the tobacco company offer 5.2% and have made a total return of 3.7% this year. The company recently increased its quarterly payout by about 2%, or two cents, to $1.27 per share.

Philip Morris sells its products abroad, where declining tobacco use and regulations are not as much of a problem as in the US. The IQOS heated tobacco device, which is currently sold abroad, generated 29% of sales last year. The company aims to nearly double that amount by 2025. “You get paid to wait with that 5% return,” said Huber, who owns the stock.

Investors shouldn’t overlook stocks with low returns, rising payouts and solid core business.

Insurance brokerage

Marsh & McLennan

(MMC), for example, only yields 1.5%. But the dividend is growing at a good clip. The company increased it by about 10% in July to 59 cents a share, or $2.36 year-on-year.

Marsh does not have large capital expenditures, a large flow of money for many industrial companies and companies in other sectors. Barclay cites Marsh’s steady revenue increases as support for the dividend, which is expected to rise. It will hit $2.45 in 2023, according to consensus estimates, with a payout ratio of a comfortable 33%.

Shares of Marsh are down 9.6% this year, including dividends. That’s a good performance against the financial sector of the S&P 500, down 17.7%. Marsh has proven resilient in recessions, with earnings per share soaring in all economic contractions dating back to 1952, CEO Daniel Glaser told investors in July. Factors supporting growth include inflation, which boosts insurance pricing, and higher rates, which boosts fiduciary income and profitability.

The knocked-down tech sector also has some attractive dividend stocks. One that Barclay likes is:


(MSFT), a fund holding company since 2004, when the software giant first paid a dividend. Admittedly, Microsoft stock returns a paltry 1.1%. But the payout has been steadily rising, including a 10% increase over the past week to 68 cents per quarter.

Most investors do not own Microsoft because of its dividend, but instead seek it to earn capital gains from areas such as video games and business software. Shares are down about 27% this year, which is largely in line with the tech sector’s decline. Still, Barclay likes the long-term stance. “If you take a step back and look at the revenue and cash flow, they keep growing,” he says.

Two more defensive choices to consider: Medical Device Company

Becton Dickinson

(BDX) and health insurer

Elevation Health

(ELV). Huber likes both for their “defensive growth” business models, he says.

Becton, with a return of 1.4%, is up a hair this year, including dividends. The company increased its quarterly distribution by 5% to 87 cents per share at the end of last year. Shareholders should receive another raise later in 2022.

Elevance returns 1.1%, but increased the quarter this year by 13% to $1.28 per share. At about $475, the stock is heading for 15 times its estimated 2023 earnings and has “room for multiple expansions,” Huber says. The dividend should grow too, nothing to sneeze at in a gloomy market.

Write to Lawrence C. Strauss at [email protected]


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