It is now a harsh reality that will remain with us for a longer period of time than previously expected.
At the beginning of 2021, the US was forecast to end the year with inflation at 2%. Instead, the world's largest economy could end the year with inflation close to 7%. The tacky nature of this price escalation means the Federal Reserve will raise interest rates faster than expected. Adding to this risk is that stock prices are already close to bubble territory.
As these risks increase, stock values ??become harder to sustain, forcing investors to move their funds from high-growth stocks to safe havens such as government bonds. Another way to consider in this uncertain economic environment is to buy some top dividend-paying stocks that are increasing their payouts faster than inflation.
With that theme in mind, we've shortlisted two quality stocks below that income investors should buy right now. Each stock not only offers the potential for strong capital gains, but has also generated significant annual payout increases to counteract the impact of higher prices.
1. Broadcom
Investing in semiconductor stocks has proven to be a winning bet for investors over the past two years. When the use of everything from laptops to cell phones to data centers exploded during the pandemic, the companies making the world's fastest and smallest chips struggled to meet demand.
If you want to play it safe in this sector by buying less volatile stocks, we recommend considering Broadcom (NASDAQ:) stocks. The San Jose-based company's wireless connectivity chips are used in iPhones and other smartphones. The switch silicon and custom designs are essential components of data centers owned by cloud computing giants such as Alphabet's Google (NASDAQ:) and Amazon AWS (NASDAQ:).
In a release released last week, Broadcom again exceeded analyst expectations. In the fiscal fourth quarter, Broadcom's adjusted earnings per share were up 23% and revenue was up 15%.
According to CEO Hock Tan:
“Broadcom closed the year with record fourth quarter results, driven by a business recovery and continued strength in demand for cloud and service providers. Our infrastructure software continues to grow steadily with our focus on strategic customers.”
Broadcom's extensive reach across multiple sectors gives investors both a reliable income stream and additional upside potential. While Broadcom stocks have risen more than 250% in the past five years, so has the dividend.
It has more than tripled, from $1.02 per share per quarter in 2017 to $4.1. The company last week announced a massive 14% increase in its common stock dividend and a $10 billion share buyback plan.
At yesterday's closing price of $639.86, the stock is currently yielding about 2.56% – a return that is higher than the average return offered by companies. Broadcom is in a strong position to reward its investors with hefty payouts going forward as demand for its chips remains strong.
2. Verizon
If you want to monetize your stock holdings, it's not a bad idea to buy stocks from technology companies that generate recurring revenues from their established products.
As a provider of Internet and wireless connections, Verizon Communications (NYSE:) certainly fits the bill. These services are among the last items consumers remove from their must-have list. This predictability and stickiness increases the company's earnings for long-term investors.
Verizon has a solid track record of rewarding investors with growing dividends since 2007. The company currently pays $0.64 per quarter per share, which translates into an annual dividend yield of 5%.
CEO Hans Vestberg is cutting investment in high-risk areas, such as media, to focus fully on network expansion. Recently, Verizon sold Yahoo (NASDAQ:) to a private equity firm, Apollo Global Management, for $5 billion, with $4.25 billion in cash.
This year, Verizon surpassed estimates of wireless subscriber growth, with promotions for new phones helping the carrier in the race to sign customers up for faster 5G services.
Telecom stocks may not provide significant capital gains, especially when compared to high-growth stocks. But these stocks are defensive in nature and help investors beat inflation with decent returns.
That said, Verizon's share is lagging the market. Shares are down 13% this year on concerns that the company's cable television and cable business will continue to hamper the company's growth profile.
However, investors are ignoring two crucial facts: Verizon continues to lead the 5G rollout and the wireless segment has huge growth potential. In the United States, both sales and earnings per share were ahead of analysts' expectations.
Verizon tops Goldman Sachs' list of laggards that could see a strong recovery in 2022, with upside potential of 24% in the new year. The stock closed yesterday at $50.55.
