Inflationary pressures have been at the forefront of investors' minds for almost a year now. In December, the consumer price index, a measure of inflation, came in at 7% -- the highest reading since 1982.
Inflation can be tricky for investors and regulators, but they don't have to be. According to research from Fidelity, dividend payments have accounted for 40% of the overall stock market's return since 1930. The research shows that during inflationary periods in the 1940s and 1970s, dividends accounted for 65% and 71% of the S&P 500's return.
Prudential Financial (PRU 1.08%), United Bankshares (UBSI 1.06%), Virtu Financial (VIRT 0.04%), and Morgan Stanley (MS 0.86%) are four high-yielding stocks that deliver dividends above the S&P 500 average and can also help you crush inflation.
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1. Prudential Financial: 4.17% dividend yield
Prudential Financial is a provider of life insurance and other financial products. The company faced tough times in 2020 when the coronavirus pandemic first emerged, but it recovered nicely in 2021 and saw its stock beat the S&P 500's total return for the year.
Last year, management was focused on cutting costs and eliminating low-growth products to focus on those with higher growth potential. The company cut $590 million in costs last year alone -- with the goal of saving $750 million by 2023. It also touts a rock-solid balance sheet, with $400 billion in bonds and cash assets, while also sporting a debt-to-equity ratio of 0.6.
Life insurance companies should continue to bounce back as the world returns to some level of normality. That company also stands to benefit from rising interest rates, with its investment portfolio generating higher yields. As a result, it should be able to deploy some of that capital toward higher-earning investments as the Federal Reserve is widely expected to raise rates four times or more in 2022.
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2. United Bankshares: 4.09% dividend yield
United Bankshares is a regional bank operating across the mid-Atlantic and Southeastern regions of the U.S. The bank has a strong footprint in the Virginia-Washington, D.C., metro area. One thing it has done particularly well is acquire smaller banks and incorporate them into its business. Since 1982, the bank has completed 33 acquisitions. In recent years it has added banks in North Carolina and South Carolina, and it has expanded from its home base in West Virginia into the Washington, D.C., market.
United Bankshares is a solid bank stock that has shown an ability to perform no matter the market environment. The bank has maintained an average efficiency ratio -- a measure of how efficiently the bank writes loans -- of 53% since 2007, while its peers have achieved a 66% ratio in the same time. (A lower ratio is better.) The bank stands to benefit from rising interest rates, since banks make money from the spread between interest paid out on deposits and interest earned on loans.
United Bankshares has a solid yield just north of 4%. Not only that, but the regional bank has increased its dividend payout for 48 consecutive years, a feat that would land it on the Dividend Aristocrats list if it were a member of the Standard & Poor's 500 Index.
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3. Virtu Financial: 3.14% dividend yield
Virtu Financial is a market-making firm that provides liquidity to global financial markets. What this means is the company helps investors of all types easily open and close positions in things like stocks and options.
One aspect I like about Virtu Financial is that it stands to benefit if market volatility is elevated. That's because market volatility widens bid-ask spreads, which are the difference between the highest price a buyer will pay and the lowest price a seller will take. This wider bid-ask spread results in higher profits for market makers like Virtu.
For example, in 2020, when the pandemic was in the early stages, heavy volatility in the markets led to wide bid-ask spreads, and as a result, Virtu posted record revenue and profits. Last year saw a slowdown in volatility, which caused Virtu's top and bottom lines to take a hit. However, if 2022 is anything like the first month of the year, then elevated volatility should be a good thing for Virtu's market-making business.
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4. Morgan Stanley: 2.75% dividend yield
Morgan Stanley has traditionally been known for its investment banking capabilities but it has undergone a transformation in recent years. In the past two years, the company has closed major acquisitions of both the E*TRADE trading platform as well as Eaton Vance, a wealth-management firm. In total, Morgan Stanley spent $20 billion to transform its business into a more balanced stream of revenue.
Morgan Stanley could be a good stock to own for inflation because of its diverse revenue model. While investment banking activity may not keep up with the strong growth of 2021, the firm could benefit from rising rates, which would increase Morgan Stanley's net interest income. During its fourth-quarter earnings call, Chief Executive Officer James Gorman said the company could see an additional $500 million in net interest income, which depends on the timing of rate hikes as well as loan growth.
Also, like Virtu Financial, the firm could benefit from volatile market conditions if trading on its E*TRADE platform rises. It could also see more demand for wealth-management services as investors look to navigate what could be a tricky market environment with rising inflation and interest rates.
