3 Dividend Stocks to Beat Inflation and Earn Growing Dividends

Major markets may have posted a relief rally yesterday after showing that policymakers were eyeing the possibility of a recovery later this year. But while the outlook has calmed the nerves of short-term investors, there are still many macroeconomic headwinds on the horizon, such as high and growing risks of a recession in the United States.

In these challenging times, building a quality, income-generating portfolio can dramatically improve anyone’s investment performance. This can be done by purchase stocks of companies with strong balance sheets, a wide economic moat and a history of rewarding investors with growing dividend payouts.

These companies typically provide products and services that are so essential to consumers that one cannot imagine everyday life without them. Moreover, it makes these companies resilient in the face of market crashes, wars, depressions, geopolitical upheavals, and asset bubbles.

With that theme in mind, below we’ve shortlisted three stocks that income investors might consider buying now, especially when high. Each stock not only offers strong capital gains potential, but has also provided substantial payout increases each year to counter the impact of rising prices.

1. Bank of Nova Scotia

  • Dividend yield: 4.91%
  • Quarterly payment: $0.78
  • Market cap: $76.6 billion

The Bank of Nova Scotia (NYSE:), Canada’s third largest lender, currently offers one of the highest yields among the country’s six largest banks. It could be a great addition to any long-term income portfolio. Shares of BNS closed Wednesday at $65.36.

The Toronto-based financial institution has the most diversified portfolio among Canadian banks, with a substantial portion of its revenue coming from overseas operations, primarily in Central America and the Caribbean.

Chief executive Brian Porter spent much of his eight-year tenure revamping the international unit by selling small or underperforming operations and doubling down on bigger, more promising markets.

Yesterday the bank said its Canadian banking profits rose 27% year over year, fueled by robust growth in mortgage and commercial loans, lower provisions for credit losses and substantial income from fees.

The lender also has an excellent dividend history. The Bank’s earnings growth has translated into increased dividends for 43 of the past 45 years, one of the most consistent records of dividend growth among large Canadian corporations. The bank has been paying dividends since 1833.

2. Home Depot

  • Dividend yield: 2.64%
  • Quarterly payment: $1.9
  • Market cap: $76.6 billion

The Home Depot (NYSE:) is one of those retailers you can rely on to deliver consistent dividend payouts. The home improvement giant, in recent years, has invested heavily to prepare for the onslaught of e-commerce and changing consumer behavior. Its stock closed Wednesday at $293.57 per share.

HD weekly chart

Additionally, HD recently improved its full-year earnings outlook after a jump in same-store sales in the first quarter showed demand for home improvement supplies persists, even as mortgage rates rise.

In the call with analysts, Chief Financial Officer Richard McPhail said the appreciation in home values ​​helped boost consumer spending despite inflation.

The Atlanta-based HD is also a reliable dividend payer. Over the past five years, its quarterly dividend has increased by an average of 22% per year. With an annual dividend yield of around 2.6%, the company pays out $1.9 per quarter. And, with a solid 50% payout ratio, there’s a lot more room for growth.

3.McDonald’s

  • Dividend yield: 2.26%
  • Quarterly payment: $1.38
  • Market cap: $279 billion

Fast food giant McDonald’s (NYSE:) has a strong track record of consistently rewarding investors. Since it began paying dividends in 1976, the company increased its payment each year. MCD closed yesterday at $244.01.

MCD weekly chart

McDonald’s has many of the qualities investors look for in a high-income stock: the company has a global competitive advantage over its rivals, a strong recurring revenue model, and an excellent track record of earning its investors.

After struggling during the pandemic, when closures hurt its restaurant business, the business quickly regained sales momentum. In April, the company announced better-than-expected results, fueled by price increases in the United States and strong growth in international sales.

MCD pays a quarterly dividend of $1.38 per share. This translates to an annual dividend yield of 2.26% at the current share price. With a manageable payout ratio of around 70%, the company is well positioned to continue to generate dividend growth.

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