The U.S.’s annual inflation rate increased to 9.1% for the month of June, the highest reading since November of 1981.
Investors looking to protect their portfolio against rising inflation might want to consider owning stocks delivering high yields. The income these stocks provide could help to offset the havoc inflation can cause to an investor’s retirement portfolio.
This discussion will examine four stocks that meet the following criteria:
- Dividend yield of least 4%
- Trade near or below the GF Value
- Have a GF Score of at least 70 out of 100
Newmont
First up is Newmont Corp. (NEM, Financial), a mining company that specializes in gold, copper and silver. The company operates mines on four continents, including North and South America, Asia and Africa. The more than 100-year-old company has nearly 93 million ounces of proven and probable reserves of gold, 6.9 million tons of copper and 568 million ounces of silver. Newmont has a market capitalization of $41 billion and generated revenue in excess of $12 billion in 2021.
Newmont is highly dependent on the price of precious metals for its business, so consistent growth has been hard to come by over the years. Last year’s earnings per share remains far below the $4.40 the company had in 2011. However, increases in metal prices has led to a 19% compound annual growth rate for earnings per share over the last five years.
With inconsistent earnings growth comes inconsistent dividend growth. In the last 15 years, Newmont has paused its dividend several times (2006 to 2009 and 2018 to 2019) and cut it several more times (2014 and 2015). Still, shareholders have seen their dividend payments grow with a CAGR of 5% over the last decade and more than 72% since 2017. Presently, Newmont has a dividend growth streak of six years. Shares of the company yield 4.2% today, which is more than 2.5 times the 1.6% average yield for the S&P 500 Index.
Newmont looks attractively valued according to the GF Value chart.
With a current share price of $51.38 and a GF Value of $74.54, Newmont has a price-to-GF Value ratio of 0.69. The stock could return 45% if it were to reach the GF Value. Add in the dividend and total returns could push into the high 40% range. Newmont is rated as significantly undervalued by GuruFocus.
The GF Score takes into account growth, value, momentum, financial strength and profitability. With at least a 6 out of 10 in each area, Newmont has a solid GF Score of 86 out of 100.
Prudential
The next stock for consideration is Prudential Financial Inc. (PRU, Financial), a major life insurance company. Beyond insurance, the company offers investment management and other financial services and products. The company has been in business for nearly a century and a half and has operations in more than 40 countries. Prudential has $1.7 trillion in assets undermanagement, a market capitalization of $36 billion and annual revenue of $54 billion.
Prudential has enjoyed a successful last decade as earnings per share had a CAGR of just under 10% for the period. Earnings still compounded at 8.2% since 2017 as growth has only moderated slightly in the medium term.
The company did cut its dividend in 2008 and 2009 as it dealt with the fallout from the Great Recession, but the dividend returned to its pre-crisis level by 2010. The dividend has compounded by 12.4% per year since 2012 as the company has aggressively raised its distribution to shareholders. In total, the company has increased its dividend for 14 consecutive years. Shares of Prudential yield 5%, well ahead of the market average.
The stock has not suffered nearly a drastic as a decline in the S&P 500 Index over the last year, resulting in Prudential trading close to its intrinsic value.
Prudential recently traded at $95.53. With a GF Value of $101, the stock has a price-to-GF Value of 0.95. Reaching the GF Value would result in a 5.7% gain from current levels. Factoring in the dividend pushes the total returns close to 10%. Prudential is rated as fairly valued.
Prudential has a GF Score of 72 out of 100. Financial strength and growth are rated just a 4 out of 10 by GuruFocus. On the other hand, the company receives a decent score of 6 out of 10 on value and a perfect 10 out of 10 on momentum.
W.P. Carey
Next up is W.P. Carey Inc. (WPC, Financial), a real estate investment trust. The more than 40-year-old company specializes in single-tenant properties in the U.S. as well as Northern and Western Europe. W.P. Carey is valued at $16 billion and produced revenue of $1.3 billion last year.
Funds from operations per share grew 3.2% annually for the 2012 to 2021 period. W.P. Carey, as REITs often do, used share issuances to fund expansion efforts. In fact, the share count almost tripled over the last decade. Funds from operations enjoyed a CAGR of 15% for the period, showing W.P. Carey is one of the best in its industry at producing high levels of growth.
W.P. Carey has 25 consecutive years of dividend growth, qualifying it as a Dividend Champion. There are just a handful of other REITs that have a similar or longer growth streak. Annual dividend growth has been close to 7% since 2012. W.P. Carey is different from most companies in that it raises its dividend every quarter. The stock has a yield of 5.1%.
The stock has advanced 5% over the last 12 months, well ahead of what the market index has returned. As such, shares are slightly ahead of their GF Value.
The stock most recently traded at $83.34. The GF Value of $79.53 implies a price-to-GF Value of 1.05. By this measure, W.P. Carey is 4.6% overvalued. Nonetheless, shares are rated as fairly valued.
W.P. Carey also has a GF Score of 72 out of 100. The trust scores a 7 out of 10 on profitability and a 6 out of 10 on momentum, but the remaining categories receive a 5 out of 10 or less.
Western Union
The final stock is The Western Union Co. (WU, Financial), which provides money transfers around the world. The company’s reach is widespread as it operates in almost every country, with the bulk of its 510,000 agents located outside of the U.S. Western Union is valued at $6.4 billion and has annual revenue of $5.1 billion.
Western Union has struggled to grow its bottom line, only posting year-over-year earnings growth in six out of the last 10 years. The company’s earnings CAGR is just 2.6% since 2012. This is despite a reduction in the share count by almost one third. The company is expected to have one of its better years of the last decade in 2022, but will likely see a year-over-year decline.
Despite this weakness, dividend growth has been solid. The company has a dividend CAGR of 9.1% over the last 10 years, though dividend growth has slowed to 7.6% over the last five years. Western Union has increased its dividend for seven consecutive years and yields 5.6% today.
The GF Value chart shows that the stock has solid upside potential from the current price.
With a current share price of $16.69 and a GF Value of $21.97, Western Union has a price-to-GF Value of 0.76. Reaching the GF Value would result in a 31.6% return before including the stock’s generous dividend yield.
Western Union has a GF Score of 82 out of 100. Financial strength and growth are Western Union’s weakest components of its GF Score, with both areas receiving a 5 out of 10. Value has a perfect score of 10 out of 10 and profitability is 8 out of 10.
Final thoughts
Inflation remains a major issue and can greatly impact investments and retirement planning. Dividend yields can help to offset this expense. Newmont, Prudential, W.P. Carey and Western Union all have dividend yields of at least 4%. Each name also has a solid GF Score, meaning that it is likely to outperform those companies with lower ratings.
For investors looking for income and a way to mitigate some of the impact of inflation, each stock could be a solid addition to the portfolio.
