The specter of escalating inflation is looming, which is not good news for investors. in June the strongest increase since 2008, further strengthening the reason for the Federal Reserve to raise interest rates earlier than expected.
If that happens, stock values ??will fall and investors will move their money from high-growth stocks to safe havens such as government bonds. For equity investors, dividend stocks that increase their payouts faster than inflation are an effective way to consider.
With this theme in mind, we've shortlisted three stocks below that income investors could buy right now. Each stock not only offers the potential for strong capital gains, but has also seen significant payout increases each year to counteract the impact of higher prices.
1. Home Depot
American home improvement giant Home Depot (NYSE:) has a remarkable track record of increasing its payout much faster than inflation. Over the past 10 years, the home renovation giant has achieved an average annual growth of 22% in payouts.
There is a good possibility that the Atlanta-based retailer will continue to drive this kind of growth for the next 10 years. Just before the deadly pandemic hit, the home improvement chain, which operates in the U.S., Canada, Mexico, as well as Puerto Rico and Guam, had completed an $11 billion restructuring plan to modernize the company's stores, add digital options upgrade and improve the offering for its key merchant customers.
Armed with these upgrades, Home Depot finds itself in a cycle, especially as factors such as a scorching hot real estate market and the evolving ways people use their homes now drive sales of home furnishing and improvement products.
With an annual dividend yield of 2%, the company offers a quarterly payout of $1.65 per share. And with a manageable payout ratio of 50%, the dividend payout has much more room to grow. The stock, which closed yesterday at $317.05, has gained about 20% this year.
2. Starbucks
The global coffee chain operator Starbucks (NASDAQ:) is another fit candidate to earn growing dividends each year while investing in a top-rated consumer stock.
Over the past five years, Starbucks has increased its payouts by more than 20% each year, highlighting management's strong focus on returning capital to stakeholders. The company, with an annual dividend yield of 1.57%, pays $0.45 per share each quarter.
After taking a heavy blow during the pandemic, the company is quickly regaining its lost ground. Revenue this fiscal year is expected to grow to between $28.5 billion and $29.3 billion, well on track to surpass the $26.5 billion the company earned in fiscal 2019. If the reopening of the global economy stays on track, these projections could even turn out to be conservative.
During the pandemic, Starbucks' payout ratio rose as revenue plummeted. But historically, the specialty coffee supplier has proven to be a safe bet for fixed income investors with payout ratios around 50%. With sales returning and the company's cash position improving, SBUX is in a good position to reward its investors.
These expectations have led to a strong rally in the company's shares, which are up 60% in the past 12 months and closed yesterday at $119.55.
3. Microsoft
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 the Windows operating system and Office software, Microsoft (NASDAQ:) certainly fits the bill.
Washington-based Microsoft offers investors a great combination of both revenue and growth. The company currently pays a dividend of $0.56 per share, for a current yield of just under 1%, which has risen about 10% per annum for the past five years, providing enough cushioning to keep inflation down. defeat.
But dividend growth is not the main reason why investors hold MSFT stocks. The company is in a solid expansion phase, which means more profit for its shares. In most cases, quarterly sales grew at one of the strongest rates in years.
Revenues rose to $41.7 billion for the fiscal third quarter, up 19% from a year earlier, the largest quarterly increase since 2018. Earnings rose 44% to $15.5 billion as more business customers signed up for Microsoft's Office productivity software and accelerate their transitions to the cloud infrastructure provided by MSFT's Azure segment.
Microsoft shares are up more than 25% this year, after rising 40% in 2020. They closed at $280.98 yesterday, a gain of just over 1% on the day.
