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3 High-Growth Dividend Stocks That'll Help You Crush Inflation

By Sean Williams – Aug 14, 2021 at 6:06AM

Key Points

  • The Consumer Price Index for All Urban Consumers rose by 5.4% in July, a nearly 13-year high.
  • Dividend stocks are often profitable and time-tested, making them a great choice to tackle inflation.

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With yields ranging from 2.4% to 7.9%, these fast-paced companies are perfect to fight back against rising prices.

Your eyes and wallet aren't playing tricks on you. The fact of the matter is that the goods and services we buy on a regular basis are heading higher at a faster rate than we've witnessed in a really long time.

A few days ago, the U.S. Bureau of Labor Statistics released the July inflation data -- inflation measures the year-over-year increase in the price of goods and services -- which showed a 5.4% increase in the Consumer Price Index for All Urban Consumers (CPI-U) over the trailing 12 months. This matches the June inflation rate, as well as ties for the fastest uptick in inflation for the CPI-U since August 2008. 

Furthermore, the Core Consumer Price Index, which excludes food and energy costs, rose 4.3% in July. That's down ever-so-slightly from a reading of 4.5% in June, which marked a nearly 30-year high.

A businessman placing crisp one hundred dollar bills into two outstretched hands.

Image source: Getty Images.

Here's how investors can fight back against inflation

As the price for goods and services climbs, it threatens to reduce the buying power of consumers and their cash sitting on the sidelines.

Arguably one of the best ways to counteract inflation is to put your money to work in dividend stocks. Companies that pay a dividend are often profitable and have time-tested operating models. What's more, they have a long history of outperforming their non-dividend-paying peers.

According to a 2013 report from J.P. Morgan Asset Management, publicly traded companies that initiated and grew their payouts between 1972 and 2012 averaged an annual return of 9.5%. By comparison, non-dividend paying stocks scratched and clawed their way to a meager 1.6% annualized return over the same period.

But understand that you don't have to buy a stodgy, slow-growing company to net a dividend that'll help you outpace inflation. The following trio of companies are perfect examples of high-growth dividend stocks that can help you crush inflation.

Three lab technicians examining liquid in test tubes and making notes.

Image source: Getty Images.

AstraZeneca: 2.5% yield

Following two decades of middling performance, pharmaceutical stock AstraZeneca (AZN 0.54%) has transformed into the high-growth, cash-flow powerhouse that Wall Street always knew it could be. Between its market-topping 2.5% yield and sustainable double-digit growth rate, it can help put inflation in its place.

Having overcome its patent cliff and competitive concerns, AstraZeneca has turned its attention to oncology and cardiovascular therapies, which is where it's seeing the bulk of its organic growth. A trio of oncology blockbusters (Tagrisso, Imfinzi, and Lynzparza) have led the way with sustainable double-digit sales growth. In general, cancer drugs have benefited from improved diagnostic screening, strong pricing power, and in some instances, longer duration of use. There's also next-generation type 2 diabetes drug Farxiga, which delivered an incredible 60% sales growth in the first half of 2021, and is currently pacing about $2.7 billion in run-rate sales for the year. 

Beyond its steady organic growth potential, AstraZeneca is making waves on the acquisition front. Last month, it closed its $39 billion acquisition of ultra-rare-disease drug developer Alexion Pharmaceuticals. The beauty of a successful rare disease operating model is that competition is virtually nonexistent, and insurance companies don't push back on high list prices.

In addition, Alexion set up AstraZeneca for the next decade by developing a next-generation replacement for its blockbuster treatment, Soliris. This treatment, Ultomiris, is administered every eight weeks, as opposed to every two weeks with Soliris. This quality of life improvement should help Ultomiris eventually secure the bulk of Soliris' $4 billion in annual sales.

Flowering cannabis plants in a large indoor cultivation farm.

Image source: Getty Images.

Innovative Industrial Properties: 2.4% yield

The cannabis industry is a great place to seek out growth stocks; but did you know it's also home to a premier dividend stock? Medical marijuana-focused real estate investment trust (REIT) Innovative Industrial Properties (IIPR -1.01%) has the potential to more than double its revenue over the next two years, all while parsing out a $5.60 base annual payout, equating to a 2.4% yield.

Innovative Industrial Properties, or IIP for short, acquires medical pot cultivation and processing facilities with the purpose of leasing them out for long periods of time. As of early August, IIP owned 73 properties spanning 6.8 million rentable square feet in 18 legalized states. The best part is 100% of this rentable space is leased out, with a weighted-average lease length of 16.7 years.  Although IIP stopped reporting its return on invested capital a little over a year ago, it had been just north of 13%. This suggests the company is on pace to net a complete payback on its invested capital in perhaps six or seven years.

While acquisitions are the primary source of growth for IIP, it's worth pointing out that the company does have a very modest organic growth component built in. Every year, it passes along an inflationary rental increase of more than 3% to its tenants, as well as charges a 1.5% property management fee that's based on the annual rental rate.

Innovative Industrial Properties is also in perfect position to take advantage of the federal government's lack of cannabis reform with its sale-leaseback program. As long as marijuana remains illegal at the federal level, access to basic banking services for pot companies is limited. IIP fills the void by paying cash for cannabis facilities. It then leases these purchased properties back to the seller. This way, marijuana companies get the cash they need, and IIP lands long-term tenants.

Multiple pipelines leading to oil storage tanks.

Image source: Getty Images.

Enterprise Products Partners: 7.9% yield

Yes, high-growth stocks can have high-yield dividends, too. Master-limited partnership Enterprise Products Partners (EPD) and its nearly 8% yield are a perfect example of how consistent growth and a beefy dividend can help investors crush inflation.

Admittedly, some people are going to be leery about putting their money to work in an oil stock after what happened to the industry last year. The pandemic led to a historic drawdown in crude oil demand that ultimately resulted in crude oil futures plunging briefly into negative territory. Thankfully, Enterprise Products Partners is well-protected by its midstream focus.

Whereas drillers can be directly impacted by lower crude prices in the short-term, midstream companies like Enterprise Products Partners that handle the transmission and storage of oil, natural gas, and natural gas liquids, aren't directly affected. As of June 30, it controlled over 50,000 miles of transport pipeline and could hold approximately 14 billion cubic feet of natural gas.  The point being that Enterprise Products' contracts with drillers are transparent and fee-based. In other words, the company knows exactly what sort of cash flow to expect from one quarter to the next. This makes it easy for management to outlay capital expenditures without compromising the dividend or the company's profitability.

Speaking of its dividend, Enterprise Products has increased its base annual payout for 22 consecutive years, and it's maintained a distribution coverage ratio ranging between 1.6 and 1.8 throughout 2020 and 2021. A distribution coverage ratio below 1 would be unsustainable. At 1.6 to 1.8, this payout is rock-solid.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Innovative Industrial Properties. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.

Stocks Mentioned

Enterprise Products Partners Stock Quote
Enterprise Products Partners
EPD
$24.81 (%)
AstraZeneca Plc Stock Quote
AstraZeneca Plc
AZN
$68.34 (0.54%) $0.37
Innovative Industrial Properties Stock Quote
Innovative Industrial Properties
IIPR
$119.99 (-1.01%) $-1.22

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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