Inflation doesn't just happen suddenly, and likewise, it won't just go away in a quarter or two. With that in mind, investors might want to shift some money into stocks that pay income in the form of dividends and will hold up through a period of inflation.
At the same time, some businesses are more sheltered from economic downturns and more apt to successfully handle an inflationary environment. Three such businesses are Home Depot (HD -1.61%), NextEra Energy (NEE -1.66%), and high-yielder Altria (MO -0.50%). All three provide some defense for today's economy, with reliable and rising dividends going to shareholders.
Housing isn't dead
One way the Federal Reserve is trying to curb inflation is raising interest rates. Among other effects, this move apply the brakes on what has been a years-long hot housing market. That might sound like a bad setup for home improvement giant Home Depot, but it shouldn't necessarily be the case.
Home Depot is diversified within the housing market. The company has worked to increase sales to professional contractors in recent years to balance do-it-yourself homeowner sales. Results of that push are reflected in the average ticket sales reported by the company for the first half of 2022. That metric jumped more than 10% in part because of the higher-cost items professionals tend to purchase.
Thanks to that business building, the company should be more ready to weather any type of housing slowdown. If new home construction and sales slump, many homeowners will funnel more money into existing home maintenance. With Home Depot stock off more than 30% year to date, and the price-to-earnings (P/E) ratio down below 17, investors are getting a good time to pick up Home Depot shares. The company thinks so, too, after recently authorizing a $15 billion share repurchase program. And even if the company doesn't thrive during an economic lull, investors can enjoy the income from its dividend that recently yielded 2.65%. Home Depot's dividend payout has more than doubled since 2018, with the company raising the rate by 15% earlier this year.
Income and growth hybrid
NextEra Energy is another company that should continue to raise its dividend to shareholders. The parent company of Florida Power & Light, the largest regulated electric utility in the U.S. by retail megawatt-hour sales, as well as Gulf Power, has raised its payout 28 consecutive years. That puts it on the list of Dividend Aristocrats. And NextEra has told investors it expects to continue to increase that payout about 10% annually for at least another two years.
An inflationary environment won't keep the utilities from receiving steady cash flow. The reliability of the utilities helps support the dividend, but the company also has the subsidiary NextEra Energy Resources. That keeps a portion of the company in growth mode as Energy Resources works to expand its portfolio of clean-energy-generating assets.
That appears set to grow as the company recently said it is raising about $2 billion by selling equity units to fund future investments in energy and power projects. Those typically include wind and solar projects, transmission and pipeline assets, and energy storage facilities. Shares dipped when the company announced the equity unit sale, giving long-term investors a better entry point.
Include a high-yield name
Altria shares provided a recent dividend yield of a healthy 8.5%. The company also just reaffirmed its full-year guidance for earnings-per-share growth in a range of 4% to 7% compared to 2021. Consumers of its products aren't likely to cut consumption even in an uncertain economic environment.
Altria has publicly stated it wants to transition adult smokers away from cigarettes. Management is calling for "harm reduction" as an alternative to outright prohibition. To that end, it has been expanding the production of its heated tobacco product and other smokeless offerings.
Thanks in part to steady revenue growth, Altria has consistently raised its dividend since the company spun out Philip Morris International in 2008.
MO Dividend data by YCharts.
There may be bumps along the road, but as the company works to satisfy both customers and regulators, dividend growth seems likely to continue. It is, after all, a Dividend King that has raised its dividend for more than 50 consecutive years. This high-yield stock is a prime candidate to hold through an inflationary period.
