Do you like dividends? 2 stocks you might want to buy

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Although still very close to historic highs, the broader market has recently retreated. One of the big fears seems to be the specter of inflation, which is a very noticeable concern in the short term. However, the impact of inflation may not be as worrisome as investors think in some sectors. Here are two stocks with historically high returns that investors might want to buy even if inflation continues to rise.

Higher prices can be a good thing

Chevron (NYSE: CVX) is one of the largest integrated energy companies in the world. The prices of oil and natural gas determine the top and bottom results. These vital fuels are out of favor right now as the world seeks to reduce the amount of carbon it creates, but it is highly likely that they will remain important for decades to come. This is because energy transitions take time and there is no quick and easy way to replace these energy sources. The stock offers a historically high dividend yield of 5.5%.

Image source: Getty Images.

The interesting thing here is that inflation is likely to cause higher prices for things like oil and natural gas. This, in turn, should create better financial results for Chevron, which has largely remained focused on its core energy business. While carbon is a very real issue to deal with, Chevron is starting to tackle it more directly through increased spending on low carbon investments. In addition, the energy specialist seems to have ample time to adapt. This suggests that investors have a high yield buying opportunity here which may in fact benefit from the impact of inflation which is currently helping to scare the market more broadly.

There are a few other notable issues here. Chevron’s commitment to its dividend is impressive given its string of annual increases of more than 30 years. He is a dividend aristocrat, having increased the payout in good and bad years. And it has the strongest balance sheet among its major integrated peers, with a modest debt-to-equity ratio of around 0.33. This provides the energy company with a solid foundation on which to continue its impressive dividend streak. If you’re looking for a dividend-paying stock today, Chevron should be on your shortlist.

Pass on rising costs

The next name is Hormel Foods (NYSE: HRL), which owns iconic brands like Spam, Planters and Skippy. It faces higher costs and it will hamper performance in the short term. This is not good news and it translated into a historically high return of around 2.3%. However, this is not the type of stock you buy in the short term; it’s the one you buy and keep for a very, very long time. And it makes a big difference in how you should think about inflation.

CVX Dividend Yield Chart

CVX Dividend Yield data by YCharts.

Hormel is a dividend king with 55 consecutive annual dividend increases. Over the past decade, the annualized rate of increase has reached an impressive 15%. And it has historically taken a very conservative approach to its balance sheet, with the current debt ratio sitting at a reasonable level of 0.5 even after the company made one of the largest acquisitions in its history (Planters). Hormel is expected to reduce its debt in the coming years as the purchase is integrated. So like Chevron, there’s a solid foundation here and a long-term commitment to the dividend.

But what about inflation? The answer is quite simple. On Hormel’s fiscal 2021 third quarter results conference call, management noted that it was already starting to pass price increases on to consumers. Strong corporate brands should facilitate this process. And, eventually, he will find a way to cover his growing costs, just as he has done several times over the past 55 years. So the short-term results will certainly feel a pinch, but in the long term it will probably be little more than a bump, as Hormel compensates for inflation with price increases. Taking a bit of a contrarian opinion here could be very rewarding for dividend growth investors.

A manageable problem

With the market as a whole still near all-time highs despite the recent pullback, investors are right to be a little worried about negative effects like inflation. However, that doesn’t mean you should stop investing. There are still some good long term options with attractive dividends. Chevron, which will likely benefit from inflation due to its exposure to commodities, and Hormel, which has the power to set prices to pass rising costs on to consumers, are two striking examples.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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