Inflation rose 6% year over year last month. While this is a meaningful deceleration from the recent peak of 9.1% last June, investors still need to be mindful of inflation. That's because even at 6%, inflation can quickly eat into purchasing power.
The good news is that quality dividend growth stocks can provide investors with streams of income that grow beyond the rate of inflation. Here are two such stocks investors should consider buying for their portfolios to keep their purchasing power intact.
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1. Hershey: Iconic brands that are loved by millions
For nearly 130 years, Hershey (HSY 1.32%) was mainly known as a confectioner, generating billions in revenue from leading brands such as Kit-Kat, Reese's, Twizzler's, and the eponymous Hershey chocolates. But once the current CEO Michele Buck took over in 2017, the company diversified into savory and better-for-you snack product categories. Since then, Hershey has acquired well-known brands like SkinnyPop popcorn and most recently, Dot's Pretzels and Pretzels Inc.
This carefully crafted business strategy to expand into snacking has made Hershey the second-biggest U.S. snacking company, boasting three of the six fastest-growing U.S. snack brands, according to Buck. All the while, the company's large portfolio of candy brands has remained the undisputed leader in the U.S. Analysts expect new product launches and additional acquisitions activity to translate into 9.6% annual non-GAAP (adjusted) diluted earnings per share (EPS) growth over the next five years from Hershey. That's significantly better than the confectioner industry's average annual earnings growth outlook of 7.7%.
The stock's 1.7% dividend yield is in line with the S&P 500 index's 1.7% yield. But Hershey's dividend growth prospects arguably set it apart: With the dividend payout ratio likely set to clock in around 46% in 2023, the company could continue to deliver double-digit annual dividend growth to shareholders over the medium term.
Even after outperforming the market over the last year, Hershey stock still looks reasonably valued. Given its quality, the stock's forward price-to-earnings (P/E) ratio of 24.4 isn't excessive compared to the confectioner industry's average forward P/E ratio of 21.9.
2. Starbucks: A tremendous dividend growth stock
Coffee and cold beverages are a part of countless consumers' daily routines around the world. And arguably no other company has captivated its customers as much as Starbucks (SBUX 1.09%). The franchise has over 36,000 stores on the planet.
And there's reason to believe that the company will keep customers coming back for more. That's because Starbucks' U.S. loyalty program again grew at a double-digit clip in its most recent quarter to top 30 million. This is why analysts believe that adjusted diluted EPS will compound at an 18% rate each year over the next five years. For context, that's far superior to the restaurant industry's average earnings growth projection of 13.5%.
Starbucks' 2.2% dividend yield is moderately higher than the S&P 500 index's 1.7% yield. Coupling the company's strong growth potential with a dividend payout ratio that is anticipated to come in below 64% for the current year, healthy dividend growth should persist moving forward.
Best of all, Starbucks' stock appears to be sensibly priced. The stock's forward P/E ratio of 24.1 is only slightly above the restaurant industry's average forward P/E ratio of 23.1.
