These 2 “battleship” dividends love inflation (and yield up to 5.5%)
JThese days, we contrarian income seekers follow a simple rule: “Treat lightly.” The truth is, we saw this mess coming. That’s why we started to lighten our positions in my Contrarian Revenue Report service in November.
In doing so, we got very good feedback like 90% on chemical manufacturer Chemours Co (CC); 44% on blue chip-focused closed-end funds (CEFs) Gabelli Dividend Trust (GDV); and 98% on the PIMCO Dynamic Income Fund (PDI–Previously ICP).
We didn’t sell any of these dividend payers because something was wrong with them, far from it!
They had simply rode the wave of Jay Powell’s cheap money as far as they could. Now that tide is turning, with rates rising and the Fed stripping bonds from its balance sheet at a rate of $95 billion a month.
All of this caused the stock market to, uh, correct.
One day soon we will recharge. In the meantime, we are receiving significant dividends from our current holdings (our Contrarian Revenue Report portfolio earns 7.5% as I write this, with many issues paying monthly), making our shopping list and getting ready to pounce on the next big buying opportunity – because it’s coming.
But what if you can’t wait?
I get it – and I hear it regularly from readers. And indeed, there are “safety first” dividends there that profit inflation and boast low volatility – a boon now and for 2023, when a recession is likely in the cards.
Below we will look at two good examples of these types of actions. (Note that these are unofficial RIC recommendations, but they may work for you, depending on your portfolio composition and situation.) First, let’s talk about what a stock needs to thrive in this inflation-and-recession scared market.
Relative strength, large payouts and pricing power: our “trifecta dividend”
When looking for reliable dividends, we primarily want stocks that have held up better than their peers in this dumpster fire. It only makes sense if they’ve stayed strong now, they’ll likely continue to do so. And when the market turns (inevitably), they will have a solid base to jump from.
Note that we are do not looking for advantageous P/E ratios here. Just resilient actions supported by strong societal trends.
Finally, we want companies that have the power to set prices to pass on their rising costs to consumers, enabling them not only to survive inflation, but also to thrive during it.
Let’s start with…
A Canadian “battleship” dividend that charges whatever it wants
BCE Inc. (BCE) is a Canadian telecommunications provider with pricing power in spades! He, with Telus Corp. (YOU) and Rogers Communications (RCI), essentially form an oligopoly, with an iron fist in the Canadian telecommunications market. That’s why Canadians pay some of the highest cellphone rates in the world.
Pricing power? To verify!
Now let’s talk about relative strength. As you can see, BCE, which also controls major Canadian television network CTV and owns the Maple Leafs and the Toronto Raptors, is holding up very well in the mess we’ve faced this year, beating its American cousin. Verizon Communications (VZ) and stay in the green.
BCE dusts off American competition
Add to that a handsome dividend of 5.5% and a record of solid and steady payout growth (the dividend has grown 70% over the last decade, in Canadian dollars), and you have it all. to pay a “battleship” dividend. It’s no surprise that this is a mainstay in Canadian investment portfolios, but we don’t have to miss it in the US: BCE trades on the NYSE, so it’s easy to buy.
An “all-weather” payout of 3.1% that is growing rapidly
Electric utilities are another must in times like these, and American Electric Power (AEP) is one of the largest, with 5.5 million customers in 11 states. Utilities are paying higher prices for coal and natural gas these days, but AEP is smartly compensating those who quickly switch to renewables, with plans to generate 50% of its electricity from clean sources by 2030.
The best thing about utilities, of course, is that they withstand all market weather conditions, and especially during recessions. And you and I both know that the fear of the next recession is increasing every day.
The reason for this resilience is quite simple: people need to heat their homes and keep their fridges running no matter what, and AEP’s sheer size attracts security-obsessed investors (and probably more than a few ” refugees” from the crowded crypto market).
Either way, they’ve propelled it (sorry, couldn’t resist) to a 14% return this year, at the time of this writing, well ahead of its sector:
relative strength? AEP understands
Now let’s talk about the payouts, because over the past five years the company has achieved a nice 35% increase in the dividend. As you can see below, these surges drove the price up – a phenomenon I call the “dividend magnet”:
AEP’s Dividend-Powered “Gain Switch”
There are probably more dividend-driven gains ahead: AEP pays out 58% of its earnings as dividends, which is very safe for a company with stable earnings like this. Moreover, this ratio is going in the right direction:
Payout Burden Light – and getting lighter
AEP’s dividend is also supported by strong earnings, with operating earnings per share expected to be between $4.87 and $5.07 for 2022, the midpoint ($4.97) of which is well higher than last year’s $4.74.
A once in 50 year retreat storm is here. Here’s how to save your wealth.
We all know Jay Powell is miles off the inflation curve. It’s today’s 2-part nightmare: a stock market crash that crushes pensioners’ wallets while inflation devours their income!
But don’t worry, you can always do something to protect yourself.
My 2-step plan is to sell the 12 popular income investments my team and I have come across (I’m sure you own at least one of these dead money games!) and replace them with 5 other income investments that offer big returns that we can use to ride out tough markets: these 5 unique buys put us off huge gains of up to 9.1%.
I reveal my plan to battle this retirement storm that only happens once every 50 years in an exclusive briefing here– I’ll show you how to access the 12 duds you need to sell now and my 5 dividends from ” fighting inflation” yield up to 9.1%.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.