Jing Pan
·4 min read
Inflation is on a white-hot tear.
U.S. consumer prices surged 8.3% in April from a year ago, down slightly from 8.5% in March, but still near 40-year highs.
Whether central bankers believe inflation is short-lived, prices are on the rise right now.
To preserve purchasing power, investors usually turn to assets like gold and silver during inflationary times. But dividend stocks are another option.
If a company can provide a rising stream of dividends over time while appreciating in value, that can give you a hedge against inflation.
Of course, due to an extended bull market, most stocks don’t pay much these days. The average S&P 500 company yields just 1.5% at the moment.
But there are companies with much more generous payouts. Here’s a look at three dividend stocks with above-average yields reaching as high as 8.7%.
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Bank of America (BAC)
Let’s start with a bank stock. Why? While many sectors fear rising interest rates, banks look forward to them.
Central banks hike interest rates to tame inflation.
Banks lend money at higher rates than they borrow, pocketing the difference. When interest rates increase, the spread for how much a bank earns widens.
And it just so happens that quite a few banks, such as Bank of America, have upped their payouts to shareholders over the past year.
In July, Bank of America boosted its quarterly dividend 17% to 21 cents per share. That gives the company an annual yield of 2.4% at the current share price.
The stock market had a sluggish start in 2022 and Bank of America is down 22% year to date. But a major rebound could be on the horizon. Goldman Sachs has a Buy rating on the company and a price target of $51 – roughly 43% above where the stock sits today.
Southern Co. (SO)
Moving up the yield ladder is Southern, a gas and electric utility holding company headquartered in Atlanta. It serves close to 9 million customers.
The utility sector is known for being a defensive play — and not just against inflation. Come what may, people still need to heat their homes in the winter and turn the lights on at night.
The recession-proof nature of the business means Southern can pay reliable dividends.
In April, the company boosted its quarterly payout by 2 cents per share to 68 cents per share, marking the 21st consecutive year that Southern has increased its dividend.
Look further back, and you’ll see that the company has paid steady or increasing dividends since 1948.
In 2021, Southern earned an adjusted profit of $3.41 per share, up 5% from 2020. Management expects adjusted earnings per share for 2022 to be in the range of $3.50 to $3.60.
Trading at $74 apiece, Southern stock offers a solid annual yield of 3.7%.
In April, Wells Fargo analyst Neil Kalton raised his price target on Southern from $68 to $80. While he kept an Equal Weight rating on the shares, the new price target implies a potential upside of 8.1%.
Global Partners (GLP)
If you really want oversized yields, you may have to look at the lesser-known stocks — like Global Partners.
Structured as a master limited partnership, Global Partners is one of the largest independent owners, suppliers and operators of gas stations and convenience stores in the Northeast.
At the same time, it is a leading wholesale distributor of fuel products and is involved in transporting petroleum products and renewable fuels by rail from the mid-continental U.S. and Canada.
The business pays quarterly distributions of 59.5 cents per unit, which comes out to a staggering annual yield of 8.7%.
In the trailing 12 months as of Mar. 31, Global Partners’ distributable cash flow covered its payout 1.7 times after factoring in distributions to its preferred unitholders.
With a market cap of less than $1 billion, Global Partners doesn’t get as much Wall Street coverage as the previous two. However, the sheer size of its distribution yield makes the stock worthy of further research.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
