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4 of the Safest Dividend Stocks That'll Help You Crush Inflation

By Leo Sun – Dec 6, 2021 at 12:13PM

Key Points

  • Apple can counter inflation with its pricing power.
  • Verizon will shine as a safe haven stock as the headwinds intensify.
  • Qualcomm and TI are both cash-generating machines that will return plenty of cash to investors to ride out the near-term challenges.

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Apple and four other tech stalwarts are well insulated from inflation.

Rising inflation is wreaking havoc on many high-growth stocks as investors fret over higher costs and reduced future valuations. Higher interest rates, which counter inflation, are also sparking fears of an economic slowdown and causing investors to rotate from dividend stocks toward lower-risk bonds.

Faced with these challenges, it might seem like a bad idea to buy dividend-paying tech stocks. However, these four tech dividend stocks should remain resilient and easily withstand the upcoming inflation-related challenges.

An Apple Store in Manhattan.

Image source: Apple.

1. Apple

Apple (AAPL -0.91%) only pays a forward dividend yield of 0.5%, but its low payout ratio of 15% indicates there's still plenty of room for much higher payments. Apple's stock price has risen nearly 270% over the past three years, but it still doesn't look terribly expensive at 29 times forward earnings.

Apple is an inflation-resistant company for two simple reasons. First, it has the clout to negotiate more favorable prices from its suppliers. Second, it probably won't lose a lot of its loyal customers if it charges higher prices for its hardware since they're already firmly locked into its software ecosystem.

Apple has also consistently executed big stock buybacks, which have reduced its outstanding shares by nearly 22% over the past five years. Spending more cash on those buybacks, which boosts the value of its remaining shares, is a better strategy than letting its cash stagnate in an inflationary environment.

Apple will face a near-term slowdown as it grapples with supply chain constraints, but its long-term outlook is still bright. Its services ecosystem continues to expand, and it will eventually expand into new next-gen markets like augmented reality, virtual reality, and connected cars.

2. Verizon

Verizon (VZ -1.14%) pays a forward dividend yield of 5%. The telecom giant has raised that dividend annually for 15 straight years, and it's spent less than half of its earnings per share on those payments over the past 12 months. The stock also trades at just nine times forward earnings.

At first glance, Verizon seems like a lackluster investment. It's declined more than 10% over the past three years as the S&P 500 has risen nearly 70%.

However, Verizon's stock will likely remain stable as rising inflation and higher interest rates rattle the markets. As the largest wireless carrier in the U.S., Verizon can likely pass on most of its higher costs onto consumers without significantly increasing its churn rates. It's also a more streamlined company than AT&T (T -0.81%), which is still trying to undo the damage of the debt-fueled expansions of its media and pay-TV ecosystems.

Verizon's stable returns, sticky ecosystem, high dividend, and low valuation will all make it an ideal safe-haven stock in an inflationary market.

3. Qualcomm

Qualcomm (QCOM -1.48%), one of the world's largest mobile chipmakers, pays a forward dividend yield of 1.5%. It's raised its annual payout over the past two years, and it's only spent about a third of its earnings on its dividends over the past 12 months.

Qualcomm's two main businesses are both well-insulated from inflation. Its Snapdragon system on chips (SoCs), which bundle together a mobile CPU, GPU, and baseband modem, power most of the world's high-end smartphones. They can also be found in virtual reality headsets, cars, and drones. The secular growth of those markets will give Qualcomm plenty of pricing power.

Its licensing business, which leverages its portfolio of wireless patents to earn a cut of every smartphone sold worldwide, also generates a stable stream of high-margin revenue. It then plows a large portion of that excess cash into big buybacks and dividends.

Qualcomm's stock has already risen more than 200% as investors have recognized those long-term strengths, but it still looks cheap at 17 times forward earnings.

4. Texas Instruments

Texas Instruments (TXN -1.17%) manufactures a wide range of analog and embedded chips for consumer electronics, cars, industrial machines, and other markets. These chips aren't as powerful as Qualcomm's mobile chips, but they're just as essential and less capital-intensive to produce.

Unlike Qualcomm, which outsources the production of its chips to third-party foundries, TI manufactures its own chips in-house. That business model insulates it from the ongoing chip shortage, and its cost-cutting migration from 200mm to 300mm wafers over the past few years enabled it to significantly reduce its own manufacturing costs and boost its gross margins.

TI's business is naturally resistant to inflation since it has much better control over its own supply chain and operating expenses than other chipmakers, and it generates plenty of excess cash for buybacks and dividends. It reduced its number of outstanding shares by 46% between 2004 and 2020, and it's raised its dividend annually for 18 straight years. It currently pays a forward dividend yield of 2.4%, which is supported by a sustainable payout ratio of 52%.

TI's stock has more than doubled over the past three years, but it still trades at 23 times forward earnings. That reasonable valuation, along with its healthy yield and stable business, makes TI a reliable and inflation-resistant tech stock.

Leo Sun owns shares of AT&T and Apple. The Motley Fool owns shares of and recommends Apple, Qualcomm, and Texas Instruments. The Motley Fool recommends Verizon Communications and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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