There are hundreds of dividend stocks that yield 3% or more, but not all of them are well positioned to thrive while inflation is at a four-decade high. On the other hand, some excellent high-yielders are in great shape to weather the storm, and some could even be long-term beneficiaries of rising prices.
I won't keep you in suspense. Here are five dividend stocks that pay excellent yields and are in a strong position to thrive in an inflationary environment.
1. Bank of America: A mega-bank with a lot to gain from rising rates
Bank of America (BAC 1.53%) is trading for roughly 40% below its recent high and for just over its book value. And to be fair, banks tend to see loan volumes decline and defaults trend upward during tough economies.
However, the bad news seems to be mostly priced in at this point, and Bank of America could actually be a net beneficiary of the rising interest rates that are accompanying inflation. With a higher proportion of noninterest-bearing deposits than most competitors, Bank of America estimates that a 100-basis-point shift in the interest rate yield curve could produce an additional $5.4 billion in net interest income annually.
2. EPR Properties: Pent-up demand is outweighing inflation pressures
With shares just 17% off the peak, EPR Properties (EPR 0.92%) is actually outperforming the S&P 500. This 7%-yielding stock is a real estate investment trust, or REIT, that specializes in experiential properties. Movie theaters, eat-and-play attractions, water parks, ski resorts, and gaming properties are just a few examples of what you'll find in EPR's portfolio.
And despite the inflationary pressures and recession fears, Americans are still getting out and spending money on experiences. Popular attractions are as busy as they were before the pandemic, and box-office revenue has been impressive, to say the least.
3. Ally Financial: A different kind of bank
Ally Financial (ALLY 6.73%) was formerly the financing arm of General Motors, so it shouldn't come as too much of a surprise that this 3.5% yielder's main business is auto lending. It originated $11.6 billion in auto loans in the first quarter alone.
But there's so much more to the business. Ally has a massive deposit platform that provides it with low-cost funding for its auto loans, as well as for mortgages, personal loans, credit cards, and more. It also has an investment platform with a brokerage and robo advisor. And with no costly branch network, Ally is a highly profitable financial institution with lots of growth potential.
4. US Bancorp: A top-notch bank at its 52-week low
With a yield of 4% based on its current stock price, US Bancorp (USB -0.20%) is one of the highest-paying big bank stocks. Even though US Bancorp is hovering just over its 52-week low, the bank trades for one of the highest price-to-book valuations in the financial sector, but there's a good reason for it.
The bank has an excellent history of responsible lending and high asset quality -- in fact, the company stayed profitable throughout the 2008-09 recession -- and it's one of the few major U.S. banks that can say that.
5. Simon Property Group: Best-in-breed retail at a discount
Last but certainly not least is Simon Property Group (SPG -0.40%), the leading mall real estate owner that yields 7.1% at the current price. To be sure, Simon's business could suffer a bit if the U.S. falls into a recession, but for the time being, it looks much stronger than its stock performance might lead you to believe.
Occupancy increased by 250 basis points year over year in the first quarter, and the company actually raised its full-year guidance. Long term, inflation could translate into higher tenant sales volume, which gives Simon pricing power to grow its rental income stream.
Buy with the long term in mind
To be perfectly clear, I have no clue what these five stocks will do over the next few weeks or months. But these are five rock-solid businesses that should be relatively immune to the effects of inflation, especially from a long-term perspective.
