Inflation can be a silent enemy of investors because it eats into their returns. Inflation in the US and Europe hit the highest in 40 years in 2022. While the pace of price increases has slowed since then, the latest inflation rate was 3.2% in the US and 2.4% in the Eurozone, both still higher than the long-term average.
There are stocks, however, that have consistently outperformed the rate of inflation, making them great long-term investments. Many of these stocks pay an above-average dividend, which helps mitigate the impact of inflation. More importantly, their business models are either less prone to inflation or in some cases, benefit from inflation. Some healthcare stocks fall into this category, because they provide goods and services that people can’t live without. Utilities have that same advantage because unless you’re willing to live in a cabin in the woods, you’re going to need electricity, gas and water. Many consumer staples are also somewhat inflation proof because we all need to eat.
In this guide, we take a detailed look at 10 of the best inflation-proof stocks currently in the market. These 10 stocks consistently provide above-average total returns, and are solid long-term picks because they perform well in an inflationary environment.
Here’s an overview of the 10 best inflation-proof stocks to invest in right now:Top Inflation-Proof Stocks to Buy in 2024
A Closer Look at the Top Inflation-Proof Stocks to Invest in
Now, let’s look at the top inflation-proof stocks for 2024 in more detail:
1. NextEra Energy – Well-Positioned for Stable Growth
The combination of NextEra’s two businesses gives it a stability that makes it a great stock to ride out a period of fast inflation or even a recession. Over the past decade, it has grown adjusted earnings per share (EPS) at a compound annual growth rate (CAGR) of 10% and increased its dividend at a compound annual growth rate of 11%. More than 80% of its earnings before interest, taxes, depreciation and amortization (EBITDA) are from assets with revenue inflators or assets with regulatory mechanisms for recovering rising costs.
In the first quarter of 2024, revenue fell 14.7% year over year to $5.73 billion, but net income rose 8.7% to $2.268 billion, or $1.10 in earnings per share (EPS), compared to EPS of $1.04 in the first quarter of 2023.
As a leader in renewable energy, the company is in a good position if the US government continues to encourage green energy. Despite consistent revenue and EPS growth, the stock price fell 14.47% over the last year and now is trading for less than 18 times earnings, which may indicate good value.
NextEra raised its dividend by 10% this year to $0.515, the 29th straight year of lifting it, and unveiled plans to continue a 10% annual dividend increase through at least 2026.
Ticker
P/E
Dividend Yield
NYSE: NEE
18.14
3.15%
2. Enbridge – Pipeline Pays Off for Long-Term Investors
Enbridge owns the world’s longest pipeline system, and roughly one-fifth of all the natural gas that is used in the US flows through its system. It has also grown its energy storage and gas distribution business. Its long-term contracts and ability to grow without spending on new projects shields it from inflationary pressures.
In 2023, Enbridge more than doubled net income and EPS. Its full-year net income totaled $5.8 billion, an increase of 123%, and EPS was $2.84 compared to $1.28 in 2022.
It raised its quarterly dividend by 3.1% this year to $0.91, the 29th consecutive year of boosting it. Its dividend yield, at nearly 8%, is higher than the rest of the stocks on this list.
Ticker
P/E
Dividend Yield
NYSE: ENB
17.14
7.65%
3. Johnson & Johnson – Better Margins on the Way After Kenvue Spinoff
Last year, Johnson & Johnson spun off its consumer health unit Kenvue (NYSE: KVUE), providing ample funds for mergers and acquisitions. The divestment should also result in greater margins.
Johnson & Johnson has long been a value investor’s stock because of its dependability. During the Great Recession, its stock dipped less than the overall market and it came back faster.
The drug and medical device maker’s only downside has been that, because of its size, its growth has been somewhat stifled. That’s why the company’s decision to jettison its consumer healthcare division is looking pretty good right now. In Johnson & Johnson’s first-quarter earnings, revenue rose by 2.3% year over year to $21.4 billion. However, if you adjust that for the impact of its Kenvue divestiture, revenue rose 7.3%. More significantly, EPS was $2.20 compared to an EPS loss of $0.19 in the same period a year ago.
The company operates in two segments: MedTech, the medical device division, and Innovative Medicine, its drugmaking unit. Both improved revenue in the quarter, with MedTech leading the way with 4.5% growth year over year.
Innovative Medicine had six regulatory approvals in the first quarter alone, more than many companies get in a single year and it has nine more therapies that could see approvals this year. Johnson & Johnson has recently raised its quarterly dividend by 4.2% to $1.24 per share and its yield is more than twice the S&P 500 average.
Ticker
P/E
Dividend Yield
NYSE: JNJ
9.28
3.33%
4. McCormick & Co – Adding a Little Spice to Find Growth
McCormick, founded 135 years ago in Baltimore, Maryland, has increased its annual revenue for 22 consecutive years. Its record of dividend increases is even longer – 38 consecutive years. It was rated the the most sustainable food products company in the world by the Corporate Knights’ Global 100 Sustainability Index.
In the first quarter of 2024, McCormick’s revenue grew 3% year over year to $921.5, and EPS rose 19.2% to $0.62. The company forecasts 2024 sales growth to be flat, but expects EPS of between $2.76 and $2.81, compared to EPS of $2.52 in 2023, driven by McCormick’s planned price increases.
The company has invested heavily in its flavor segment in the hopes of grabbing a greater market share from younger buyers. In the first quarter, it saw 2.5% sales growth year over year, from the segment. McCormick also increased its dividend by 7% this year to $0.42 per quarterly share.
Ticker
P/E
Dividend Yield
NYSE: MKC
28.49
2.25%
5. Costco – Inflation Buster in More Ways Than One
The third-largest retailer in the world, Costco has a stellar record of growth, increasing annual revenue for 14 straight years and annual EPS for seven consecutive years. The company’s aggressive pricing strategies have made it difficult for competitors to gain market share. Costco’s hot dog and soda combo has remained at $1.50 for decades.
On top of that, Costco is providing another way to fight inflation. It’s selling between $100 million to $200 million worth of gold bullion and silver bars every month, according to Wells Fargo.
The company makes money both from the sales of its products and services, but also from its membership fees. In the second quarter, it had sales of $57.3 billion, up 6% year over year, and EPS of $3.92, up 19% over the same period last year.
Costco has increased its dividend at a CAGR of 13% over the past 20 years. This year, it raised its dividend by 12% to $1.16 per quarterly share, the 20th consecutive year of increases. It also repurchased $159 million worth of stock in the quarter.
Ticker
P/E
Dividend Yield
NASDAQ: COST
46.81
0.65%
6. Comcast – Cashing in on Its High Moat
Telecommunication companies and internet service providers such as Comcast benefit from the high barriers to entry in the industry. It’s pricy to install a cable system due to labor costs and other expenses and regulations connected to digging up properties. Comcast has a market share of 40% among US ISPs, and that’s only part of its business. Comcast also provides cell phone service and owns theme parks and film studios.
In 2023, the company posted $121.6 billion in revenue, up only 0.1%, but its net income increased by 186.5% to $15.4 billion, and its EPS climbed 207% to $3.71. The growth came from across the business. Its film studios led all others at the box office for the year, with three of the top-five grossing films: Oppenheimer, Super Mario Bros. Movie and Fast X. Its theme park reported its highest adjusted EBITDA ever and its Peacock streaming service saw revenue rise 50% year over year in the fourth quarter.
Comcast has boosted its quarterly revenue for 16 consecutive years, including a 6.9% rise this year to $1.24. Comcast’s board of directors also approved a new share repurchase agreement of $15 billion. The stock appears a bargain, trading at below 11 times earnings.
Ticker
P/E
Dividend Yield
NASDAQ: CMCSA
10.94
3.06%
7. Coca-Cola – Able to Adjust Easily to Inflation
The world’s largest beverage manufacturer and distributor has several well-known brands, such as Coca-Cola, MinuteMaid, Sprite and Powerade. Generally, when Coca-Cola’s costs rise, it has been able to pass along those costs by raising prices without losing market share. The company has rather stable growth, both in recessions and in other periods. Over the past three years, EPS has risen by 38.6% and revenue has climbed 25.99%.
Coca-Cola had $45.7 billion in revenue in 2023, up 6%, while EPS rose 8.47% to $2.69 from 2022. It has forecasted organic revenue (a non-GAAP metric) to climb 6% to 7% this year and comparable EPS to rise 4% to 5%.
Coca-Cola increased its quarterly dividend by 5.4% this year to $0.49, the 62nd consecutive year it has grown its dividend. It also bought back $1.7 billion in shares, with another $6 billion in share repurchases planned.
Ticker
P/E
Dividend Yield
NYSE: KO
24.52
3.20%
8. Innovative Industrial Properties – Treating Inflation Like a Speed Bump
The conventional wisdom says that real estate investment trusts (REIT) such as Innovative Industrial Properties are hurt by inflation because when interest rates are raised in response to it, they find it harder to borrow money to expand their operations. On the one hand, that’s true, but on the other, the phenomenal growth expected for cannabis growers means that when Innovative’s tenants thrive, it can more easily raise rents at the properties it leases. It can also afford to be more selective when picking clients.
Innovative closed 2023 with $309.5 million in revenue, which increased 12% from 2022, and adjusted funds from operations (AFFO), a better measure of profitability for a REIT than net income, of $265.5 million, an increase of 10%. The cannabis REIT owns 108 properties for a total of 8.9 million rentable square feet in 19 states and has 31 different tenants.
Its client base appears solid. Innovative’s properties are 95.8% occupied and Innovative collected 100% of its operating rent in the fourth quarter. Its average remaining lease length is 14.6 years. Innovative has raised its quarterly dividend every year since it went public in 2016, including a recent bump of 1.1% to $1.82. Since its inception, Innovative has seen a 92% AFFO growth.
Ticker
P/E
Dividend Yield
NYSE: IIPR
16.70
7.54%
9. Molson Coors – Benefiting From Inflation, Adapting to Changing Tastes
The case for investing in Molson Coors as an inflation hedge is relatively simple. When times are good, people drink beer. When inflation kicks in, people still drink beer. It has managed to be inflation-proof by raising its prices as it adapts its product mix to changing tastes. It owns the Nos. 5, 6, 12, 14 and 16 top-selling beers in the US, and it’s connecting with a growing target audience of younger drinkers.
Molson Coors has increased annual revenue for three consecutive years and led all US brewers in EPS growth. In 2023, the company reported revenue of $11.7 billion, up 9.4% from 2022, and EPS of $4.37, compared to a loss per share of $0.81 in the previous year. The company also trimmed $607 million of net debt, which should continue to improve profitability.
Molson Coors raised its quarterly dividend by 7% this year to $0.44. It also repurchased $211 million worth of company stock in 2023, and late last year, it approved a new share repurchase plan to buy back up to $2 billion of its own shares.
Ticker
P/E
Dividend Yield
NYSE: TAP
14.78
2.73%
10. Black Hills – Underpriced Gem With Consistent Dividend Growth
While inflation can cut into the margins for a utility company such as Black Hills, that’s generally a temporary problem. In five of the eight states Black Hills serves, it got approval for rate increases either last year or this year. It’s also worth noting that all of its states saw an increase in population last year. Two of them, Montana and South Dakota, were in the top 10 states for the biggest percentage increase in population growth.
In 2023, the company had net income of $262.2 million, up 1.4%, and EPS dropped slightly to $3.91 from $3.97 the year before. On the plus side, it cut its net debt to capitalization ratio from 57.3% to 60.8%.
Black Hills is one of the few small-cap companies that are Dividend Kings (stocks that have raised their dividends for 50 or more consecutive years), and it increased its dividend by 2.5% this year to $0.65, giving it a yield of above 4.5%. Over the past decade, Black Hills’ dividend has grown by 67%. The stock is trading below 14 times earnings, making it less expensive than the typical utility stock.
Ticker
P/E
Dividend Yield
NYSE: BKH
13.90
4.79%
Why Is Inflation a Problem for Investors?
Inflation can have a negative impact on the earning power of consumers and that, in turn, can lead to lower revenue and earnings for some companies. In a worse-case scenario, too much inflation can lead to a recession.
On top of that, inflation makes it more expensive for companies to expand by borrowing money as central banks raise key interest rates in response to a faster pace of price increases.
The worst part about inflation is that it devalues the money you’ve already earned. If you get a 1.2% salary increase, but inflation is 3.4%, like it was in 2023, you are worse off. The same holds true for your investment returns. If your annual returns were 7%, but inflation was 3.4%, your actual returns were only 3.6%.
Inflation can be a disaster for regular citizens, especially those who aren’t getting raises or are on fixed incomes.
What Causes Inflation?
One of the big drivers of inflation is increased government spending. When central banks increase money supply, it devalues the money that is already circulating. In some ways, that’s good for the government because it reduces the value of government debt while improving what it brings in from taxes.
Other inflationary drivers include rising wages, because with more money in their pockets, people tend to spend more. When wages rise, the costs of producing goods and services also climb. However, when wages rise and feeds inflation, that will cut the value of savings and wages of average citizens.
Production costs can also be driven up by simple supply and demand dynamics, as with raw materials getting more expensive or other supply-chain problems. Businesses often then pass on increased costs to consumers through higher prices.
What Sectors Are More Inflation-Resistant?
- Utilities: Utilities are often allowed to raise their rates to keep pace with inflation. Because they provide essential services such as water, gas and electricity, their demand is generally stable, regardless of what inflation is doing. They also tend not to have direct competition.
- Consumer staples: Companies that sell everyday products such as food, beverages and household goods can more easily raise their prices and maintain profit margins because their products are needed, regardless of economic conditions.
- Healthcare: Healthcare costs have consistently risen over time and like consumer staples, healthcare products are often the types of items and services people can’t easily forego. If you need open heart surgery, you will likely get open heart surgery. The same applies to crucial medicines that people take daily.
- Energy: Oil and gas prices are key drivers of inflation, so energy companies can directly benefit from inflation.
- Materials: Companies that produce raw materials such as steel, lumber, and copper can more easily raise their prices to keep up with inflation.
Where to Get Inflation-Proof Stock Tips and Insights
To find information on inflation-proof stocks, we recommend checking out AltIndex, a subscription-based service that uses alternative data and artificial intelligence (AI) to rate stocks. AltIndex updates its data throughout the day.
The service has ratings for several top lists that include good inflation-proof stocks, including best healthcare stocks and best dividend stocks. The lists update every half an hour and provide real-time updates on share prices. They use an AI score, taken from several datasets, to show which stocks are likely to make a big move. Stocks are scored from 1 to 100, simplifying selections for investors. AltIndex includes web searches, customer satisfaction ratings, social media, and app downloads, to help it analyze a company.
There’s also a stock screener that can be used to look specifically at various stocks, with a drop-down menu that can rate them according to several categories.
AltIndex has more than 10,000 members and provides more than 100,000 stock insights and alerts each day and has a strong win rate of 75% from its AI stock picks.
You can try AltIndex’s Starter Plan for just $29 a month and receive stock picks directly to your email, as well many other useful features.
Conclusion
Inflation-proof stocks generally have one thing in common. They sell necessary products or services that aren’t easily substituted. To put it in another way, the best inflation-proof stocks are ones that have pricing power because of their unique business models.
It’s important to factor in inflation when investing because it can eat into returns, eroding the value of the money you earn.
One way to mitigate the effects of inflation on your investments is by looking for stocks that pay above-average dividends that can boost your total returns in the long run.
No stock is completely inflation-proof. However, by including a smattering of inflation-proof stocks in your portfolio, you can hedge against rising prices and improve your returns.
References
NEE.Q1.2024.Exhibit 99 (nexteraenergy.com)
Release Details – Enbridge Inc.
McCormick & Company Revenue 1994-2024 – Stock Analysis
US ISP broadband internet subscribers 2011-2023 | Statista
IIPR Investor Presentation – 04-03-2024 (innovativeindustrialproperties.com)
PowerPoint Presentation (blackhillscorp.com)
