The Bureau of Labor Statistics' recently published consumer price index (CPI) report showed that inflation rose 7% from 2020, its highest jump since 1982. The dollar is losing purchasing power at a concerning rate, and that means spending and investing decisions are taking on added importance.
With that in mind, a panel of Motley Fool contributors has identified three stocks that can help you thrive through inflation. Read on to see why they think Procter & Gamble (PG 0.15%), JPMorgan Chase (JPM 1.94%), and Broadcom (AVGO -4.26%) are top buys right now.
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The gift that keeps on giving
Daniel Foelber (Procter & Gamble): If you were to glance at the stock chart of consumer staple giant Procter & Gamble you wouldn't think that the S&P 500 is down over 7% so far in 2022 and the Nasdaq is in correction territory. That's because good ol' P&G reached its new intraday all-time high on Friday and is on the shortlist of S&P 500 components that are up year to date.
P&G reported impressive second-quarter fiscal year 2022 results on Wednesday, including record-high quarterly revenue and strong year-over-year earnings growth.
PG Revenue (Quarterly) data by YCharts
The company's fiscal year ends June 30, 2022, and it just raised its full-year sales and free cash flow (FCF) guidance. What's more, P&G expects to return over $8 billion to shareholders through dividend payments and $9 billion to $10 billion by repurchasing its own stock.
P&G's results and guidance show it can generate organic growth and raise prices to offset inflation and higher costs. It also shows that demand for P&G's products is strong no matter the market cycle.
As an industry-leading recession-resilient business, P&G is a quintessential value stock that's ideal for retirees who want to safeguard their investment principal and supplement income in retirement, as well as investors of all ages who are looking to generate passive income. With a dividend yield of 2.1% and 65 consecutive years of dividend raises, P&G is a Dividend King you can count on to put up numbers in good times and bad.
A double-barreled solution
James Brumley (JPMorgan Chase): The usual suspects will obviously benefit from inflation. Those are energy companies, food companies, and other commodity businesses, along with most dividend-paying stocks. There's another often-unnoticed winner in inflationary environments, though. That's the financial sector in general, and banks in particular. While lenders ultimately borrow the money they're lending, the profitability of those loans actually widens as rates rise. And rates are definitely on the rise. According to Mortgage News Daily, the current average rate on a 30-year fixed mortgage is just under 3.7%, up from less than 3.2% as of mid-December. The Mortgage Bankers Association predicts this popular 30-year loan will cost 4% by the end of the year.
My top pick to plug into this dynamic is JPMorgan Chase.
It's not just a conventional bank, obviously. But more than 40% of last year's revenue of $121 billion was interest-based revenue after it paid interest on money it had borrowed. Even just a slightly more profitable loan portfolio could make a big positive impact on the bottom line.
Now couple that with the fact that JPMorgan Chase's current dividend yield is a juicy 2.7%, and what you've got is a solid name for a market environment that hasn't been kind to these sorts of picks in a while.
A dividend growth stock with a stellar track record
Keith Noonan (Broadcom): While growth stocks have taken a beating lately and could be in for more volatility, the semiconductor industry is poised to benefit from long-term secular tailwinds and hosts some attractive candidates for income-focused investors. If you're seeking big dividend growth, Broadcom is a company that should definitely be on your radar.
Broadcom designs internet connectivity chips and has also pushed into the software space through some big acquisitions. In a high-inflation environment, the company should have little trouble passing rising costs along to customers, and it's likely still in the early stages of benefiting from growth catalysts including 5G and the Internet of Things.
Recent market turbulence has pushed the company's dividend yield up to 2.8% and its forward price-to-earnings ratio down to 16. The stock now trades down roughly 21% from the high it hit late in December, but the demand outlook for Broadcom's core products remains favorable.
The company is posting very strong margins, and it managed to increase its next income 50% year over year in the fourth quarter and 137% in the fiscal year. Even if inflation were to climb significantly above current levels, Broadcom has a stellar history of returning cash to shareholders, and it's likely that dividend payout growth will significantly exceed inflation.
The company delivered its latest payout increase last month, hiking the dividend 13.9% to hit a quarterly payout of $4.10 per share. In other words, Broadcom increased its payout at nearly double the rate of last year's CPI inflation jump. Even more impressive, the tech giant has quadrupled its dividend payout over the last five years and increased it more than 3,000% over the last decade. Investors can take advantage of the recent stock pullback for elevated yield and look forward to more substantial payout growth down the line.
