Please ensure Javascript is enabled for purposes of website accessibility

1 Simple Strategy to Beat Inflation in 2022

By Prosper Junior Bakiny – Updated Jan 5, 2022 at 2:50PM

Key Points

  • Investing in dividend stocks is a great way to undo the negative impact of inflation on your portfolio.
  • Johnson & Johnson has raised its dividend payouts for 59 straight years, making it a Dividend King.
  • The drugmaker boasts a strong business fully capable of supporting future dividend boosts.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This battle-tested method to beat both the market and inflation will never go out of style.

Inflation emerged as one major concern for both investors and consumers in 2021. No one likes to pay more for goods and services, not to mention that to increase an investor's purchasing power, returns need to outpace the inflation rate. Fortunately, there are ways to fine-tune your investing to navigate these challenging conditions.

Let's consider one great strategy that can mitigate inflation risk in your portfolio: dividend-paying shares. Many investors seek companies with solid dividends because they are looking for ways to generate passive income on the side. But the truth is, even non-income-seeking investors can benefit from dividend stocks

Doctor holding piggy bank.

Image source: Getty Images.

To make the most of these stocks, dividend reinvestment is a great move to consider. It allows investors to purchase more shares of a company with the dividends the company pays. Most brokers have automatic dividend reinvestment options at no additional fees. According to a report by Hartford Funds, 84% of the S&P 500's total return between 1970 and 2020 can be attributed to reinvested dividends.

In the long run, investing in solid dividend-paying companies will undoubtedly help you tame inflation. But which stocks should you buy? Let's consider one excellent option.

A dividend you can take to the bank

Pharma giant Johnson & Johnson (JNJ 1.01%) has a storied dividend history. The healthcare juggernaut is in the very elite club of Dividend Kings -- companies that have raised their payouts for at least 50 consecutive years. That's a fantastic feat, and it doesn't stop there.

Johnson & Johnson currently offers an above-average yield of 2.44% along with a cash payout ratio of 48%, giving the company ample room to sustain dividend increases. Johnson & Johnson's historical performance is outstanding, and for investors willing to be patient, the company should continue to deliver solid returns. Here's why.

JNJ Chart

JNJ data by YCharts

Johnson & Johnson is currently going through a transformation. In November, it announced its intention to shed its consumer health segment, which is home to many popular over-the-counter brands such as Listerine and Neutrogena. The move, scheduled to be completed by the end of 2022, will make the drugmaker's business less diverse, but it will help the company focus on its more profitable and faster-growing segments: pharmaceuticals and medical devices.

Johnson & Johnson's pharma business will remain one of the largest in the world, capable of driving solid, top-line growth thanks to several drugs with fast-growing sales. Some of these products include immunosuppressants Stelara and Tremfya as well as cancer medicines Darzalex and Erleada. In the third quarter, sales of Stelara jumped 22.2% year over year to $2.4 billion. On the flip side, sales of Erleada came in at a more modest $344 million -- lower than the other three products -- but its 66.7% year-over-year growth was the highest of the bunch. 

Johnson & Johnson is also active in the coronavirus vaccine market. It generated $502 million in sales from its COVID-19 vaccine in the third quarter. The omicron variant of the virus is now making its way across the globe, so there is still a dire need for vaccines. J&J had pledged to sell its coronavirus vaccine at no profit, but as the pandemic drags on, the company expects to start earning a return.

Further, the drugmaker's pipeline boasts a long list of ongoing clinical trials. In the third quarter alone, J&J earned three new approvals. 

What does all of this mean for J&J's future?

Johnson & Johnson's solid lineup, which will only expand thanks to its rich pipeline, should continue to help the company deliver strong financial results, thereby allowing it to support its ever-increasing dividend payouts. For investors looking to beat inflation by investing in a top dividend stock with a bright future, this pharma company is almost too good to pass up. 

Prosper Junior Bakiny owns Johnson & Johnson. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.