Inflation Hits a 40-Year High. Here’s Where to Invest Your Money Now.
Living in America is getting more expensive at an alarming rate.
The consumer price index, which measures the cost of a wide array of goods and services, surged 9.1% in June. It’s the biggest year-over-year increase since 1981.
The Federal Reserve, desperate to prevent inflation from running rampant, hiked interest rates by three-quarters of a percentage point last month. The central bank has signaled that it will continue to raise borrowing costs until inflation is brought under control. The Fed’s plan, however, could drive the economy into a recession by reducing business investment and denting consumer demand.
Faced with the prospect of persistently high inflation and a slowing economy, many investors have bailed out of stocks. In turn, the first six months of 2022 marked the stock market’s worst first half in five decades.
It’s certainly not easy to invest in such a difficult economic environment. But there are always intelligent things you can do with your money. Here are three stalwart dividend stocks you can buy today that can add ballast to your investment portfolio during these volatile times.
Higher prices for oil and natural gas have been the core drivers of inflation this year. So, one way to protect your wealth is to invest in an energy stock that stands to profit from these trends.
Buying shares of ExxonMobil (XOM -0.76%) could be an excellent way to do so. The oil and gas titan generated a whopping $14.8 billion in operating cash flow and $10.8 billion in free cash flow in the first quarter alone. That represented year-over-year growth of 60% and 57%, respectively.
Exxon passes much of this cash on to shareholders via stock buybacks and a hefty 4% dividend yield. It’s also paying down debt, thereby bolstering its balance sheet and reducing the risks for its investors.
Better still, Exxon’s profits are so bountiful that it can also afford to reinvest tens of billions of dollars each year to fuel its growth initiatives. The energy giant plans to spend as much as $25 billion annually over the next half-decade to find and produce more oil and natural gas. If energy prices remain high, which appears likely, Exxon should continue to deliver handsome profits to its stock owners in the years ahead.
Higher costs for things like energy, food, and housing are driving many people to trade down when they can. In this type of inflationary environment, the value-focused menu of McDonald’s (MCD 0.20%) is particularly appealing to cash-strapped consumers.
Sales at the fast-food giant’s existing restaurants grew 12% year over year in the first quarter. Its adjusted net income, in turn, jumped 19% to $1.7 billion, or $2.28 per share.
McDonald’s is gaining market share not just because of its low prices but also for its heightened focus on convenience. Automated drive-thru lanes, delivery services, and an increasingly popular mobile app are allowing the burger behemoth to serve more people more often.
Like Exxon, McDonald’s passes its profits on to its stock owners via share repurchases and a steadily growing dividend. The company has raised its cash payout to shareholders for an incredible 45 consecutive years. Its shares currently yield a respectable 2.2%.
Clearly, McDonald’s has a proven ability to deliver a steady stream of dividend income to its investors through all manner of market environments. And should the economy sink into a recession, the need to cut costs will likely drive more people to dine at its restaurants. This ability to perform relatively well during economic downturns makes McDonald’s a highly defensive investment — and one that can help you protect your wealth today.
Like McDonald’s, Costco Wholesale (COST 0.05%) tends to benefit when shoppers go on the hunt for bargains. The discount warehouse chain provides its members with a curated selection of high-quality goods at value prices. Unsurprisingly, considering the current economic climate, business is booming.
Costco’s net sales leaped 20.4% to $22.8 billion in June. Even after excluding the impact of gasoline prices and foreign exchange fluctuations, the retailer’s same-store sales grew by an impressive 13%.
Costco’s scale allows it to purchase goods at favorable prices. It then sells those items to its members at levels slightly above its costs. This makes it difficult for its competitors to match its prices.
Most of Costco’s profits are derived from its membership fees. For $60 per year, members can gain access to the company’s offerings. These fees totaled $984 million in Costco’s fiscal third quarter, which ended on May 8, and accounted for the lion’s share of its $1.4 billion in net income. They’ve also enabled Costco to reward shareholders with a steadily rising quarterly cash payout and sizable special dividends over time.
Costco’s near-90% membership renewal rates are a testament to the tremendous value it provides to its customers. The retail titan’s loyal membership base should help it generate further sales and earnings growth in the coming years, as well as solid long-term returns to its investors.