Inflation rates may finally be cooling down from last year's unnerving levels. However, prices are still rising at a pace above long-term averages, so consumers can't breathe easy just yet -- and neither can investors, for that matter. After all, inflation is simply the reduction of money's effective buying power. It doesn't really matter where the money's coming from.
That said, investors have some options to help curb the adverse impact of inflation. Plenty of dividend-paying companies are dishing out -- and growing -- their dividend payments generously enough to outpace inflation's impact. Here's a closer look at three such dividend stocks to consider adding to the income-paying portion of your portfolio.
1. Amgen: Dividend yield is 3.6%
Almost everyone's heard of pharmaceutical company Amgen (AMGN 0.38%), but most people would be hard-pressed to name one single drug it makes.
That's not necessarily a bad thing, though. It's a sign that its drug portfolio is highly diversified and that the company itself is flying under the radar, quietly churning out cash that supports its dividend payments. Amgen earned an operating profit of $3.98 per share last quarter, handily covering its dividend payout of $2.13 per share.
That's a dividend, by the way, that's been raised every year since 2011 -- and by more than a little. Back then, its per-share quarterly payout was a mere $0.28 per share.
In-the-know investors likely already know the Federal Trade Commission is suing to prevent Amgen from completing its intended acquisition of Horizon Therapeutics, cutting off access to several new revenue-bearing prospects. It's discouraging, to be sure.
Don't sweat it too much, however. The deal could still go through, and even if it doesn't, take a step back and look at the bigger picture. Amgen is interested in acquisitions, and it is in a fiscal position to make such deals. If not Horizon, there are other prospects on the radar that would dovetail nicely into the company's cash-generating operation.
Oh, and if you're wondering, rheumatoid arthritis treatment Enbrel is Amgen's best-selling and arguably best-known drug. Even so, it only accounts for about 15% of the company's total revenue. It's got more than 20 others chipping in.
As noted, Amgen's revenue base is very, very diversified. That's what you want to see in dividend payers of this ilk.
2. Cisco Systems: Dividend yield is 3.3%
Most technology stocks aren't known for being income-driving names. Cisco Systems (CSCO -0.30%) is a clear but rare exception to this norm, paying out 3.3% of the stock's present price. Investors looking for income should consider scooping this name up while the oddity's yield is relatively high.
Cisco is of course the king of computer networking. It's been around since the earliest days of the web, and while competition has crept in, IDC says the company still commands a leading 35% share of the networking market.
You probably don't have a Cisco router in your home. But, there's a very good chance your employer relies on Cisco's tech. This enterprise market is where the big bucks are.
But the company's continued dominance isn't the chief reason you might want to own a piece of it for its income potential. Rather, you should eye it as a dividend name for how well-shielded its current and future dividend payments are.
See, Cisco has very little debt, but lots of cash. As of the three months ending in January, the company was sitting on more than $22 billion in cash and liquid investments, versus only $7.6 billion worth of long-term debt. For added perspective, Cisco turned $13.6 billion worth of revenue into net income of $2.8 billion during the quarter in question, with the aforementioned debt only costing it on the order of $100 million.
This degree of financial flexibility is always an advantage, but it's particularly advantageous when economic headwinds are blowing while costs -- and interest rates -- are rising.
3. Advance Auto Parts: Dividend yield is 4.9%
Last but not least, add auto parts retailer Advance Auto Parts (AAP 0.43%) to your list of dividend stocks to buy if you need a safe, reliable way of beating inflation.
On the surface, it seems like the car parts industry should be a cyclical one -- or one at least impacted by economic ebbs and flows. When times are good, consumers will buy new vehicles. When things are less than robust, people will invest in a fix to keep an automobile reliably on the road. And when times are downright tough, folks just might skip making a repair (whether it's needed or not).
The fact is, however, the auto parts business is oddly consistent; sales growth is usually a foregone conclusion. As it turns out, people are doing whatever it takes to keep their cars running, regardless of the economic environment. It's a dynamic that's perfectly suited for dividend-paying companies.
That said, while Advance Auto Parts has reliably paid a dividend since 2006, it's only been since 2021 that the company's been serious about sharing the wealth, so to speak. That's when its quarterly payout was catapulted from $0.25 per share to $1, en route to its current payment of $1.50. The subsequently high yield of 4.9% may simply reflect investors' lingering shell shock over the relatively new prioritization of a dividend as much as it reflects this year's headwind for the stock.
Whatever the case, don't overthink it. Just capitalize on the market's unmerited concern. Advance Auto Parts earned $2.88 per share in the final quarter of last year, and $13.04 per share for the full year. That's more than enough to cover the current dividend. Likewise, even this year's expected off-year for earnings will still produce more than enough profits to support its dividend before next year's expected earnings rebound.
