Buy These Dividend Growth Stocks to Combat Inflation

Dividend Growth Stocks Are Smart Picks During Periods of Rising Inflation

With consumer prices jumping 6.2% in October, the highest increase in 30 years, it’s clear that inflation is escalating at a rapid pace. While we don’t know exactly how long this alarming trend will continue, it certainly makes sense to consider some of the smartest ways to protect your wealth in an inflationary environment. One option to explore is investing in dividend growth stocks, as these companies will reward shareholders with consistent income and growing payouts over the long run.

If you decide to pursue dividend growth investing, it’s critical to choose companies that are generating enough cash flows to cover their payouts in the future. These are often leaders in their respective industries that have established businesses, which means investors can typically count on them for stable earnings. If you’re interested in some great examples, we’ve put together a list of dividend growth stocks to consider buying below so that you can protect your capital against the impacts of inflation. Let’s take a deeper look.

AbbVie Inc (NYSE: ABBV)

While biopharmaceutical companies can certainly present investors with their fair share of volatility, adding shares of the top quality names in the sector can be a winning strategy over the long term. That’s a big reason why AbbVie stands out, as it’s a biotech stock that offers investors a nice combination of established blockbuster drugs along with a high-upside pipeline of new drugs. AbbVie develops and markets advanced therapies to treat conditions that impact the health of millions, with product categories including immunology, oncology, neurological disorders, eye care, and more.

The company’s biggest drug is called Humira, which is used to treat 14 autoimmune diseases and accounted for around 38% of the company's revenue in Q3. While Humira sales have been slowing a bit due to biosimilar competition, the company has been focused on diversifying its revenue streams to help deal with this issue. For example, AbbVie acquired Botox-manufacturer Allergan for $63.4 billion back in 2020 that should lead to strong synergies and improved free cash flow generation going forward. AbbVie’s Q3 diluted EPS increased by 38% year-over-year and the company announced another dividend increase of 8.5%, both additional reasons to consider adding shares at this time.

Mastercard (NYSE: MA)

Adding shares of this leader in the payments industry could end up paying off in a big way, as the stock price has taken a beating recently and offers a very attractive entry point at this time. Mastercard is the second-largest global payment processor and a company that plays a critical role in the world’s economy. The company's payment network helps consumers, financial institutions, and merchants to send and receive money in a convenient and efficient way, which is certainly a service that will be in high demand for years to come.

The stock just reclaimed the 200-day moving average, a key level that tells us the share price might be stabilizing after the recent weakness. It’s also worth mentioning that Mastercard has a 3-year dividend growth rate (CAGR) of over 20%, which is certainly appealing at this time. Investors should feel confident that this well-known company has a winning business model that should deliver plenty of upside over the long-term given how much room the digital payments space has to grow. Finally, there’s plenty to like about the earnings upside here as travel starts to rebound, because Mastercard generates a lot of revenue from cross-border transactions.

Morgan Stanley (NYSE: MS)

Adding shares of a leading financial services firm to combat inflation makes a lot of sense, as banks tend to perform very well when interest rates are going up. Remember that if inflation continues to heat up, the Federal Reserve will likely have to raise interest rates in order to slow the economy. Morgan Stanley is a great option in the financial sector to consider, as the company is raking in record net revenues thanks to strength in its wealth management and investment banking segments. The company reported net revenues of $14.8 billion in Q3 along with net income of $3.7 billion, up 25% year-over-year.

It’s also worth mentioning that Morgan Stanley’s acquisitions of E*TRADE Financial and Eaton Vance could be strong growth drivers for the firm going forward, particularly with the way the equity markets have continued to hit record highs. The company has also been known to boost its dividend payments on a regular basis, including a recent 100% quarterly dividend increase back in the summer. The stock currently offers investors a 2.83% dividend yield and is a quality name that should absolutely be on your shopping list going forward.