3 Favorite Dividend Aristocrats to Protect Against High Inflation

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3 dividend growth stocks

By Bob Ciura, of Sure Dividend

Inflation is a pressing issue for investors. Core inflation in the United States reached a 31-year high in October, which means investors should position their portfolios to make sure their purchasing power remains intact.

One of the ways investors can combat rising inflation is by investing in quality dividend growth stocks that can increase their dividend payouts above the rate of inflation. For investors looking to protect their portfolios from inflation, we recommend the Dividend Aristocrats, a group of 65 stocks in the S&P 500 Index with 25+ consecutive years of dividend increases.


The following three stocks represent our top-ranked Dividend Aristocrats today based on their dividend growth, high yields and strong expected returns over the coming years.

Dividend Aristocrat #1: AT&T Inc. (NYSE: T)

AT&T is a telecommunications giant, as its core Communications segment provides mobile, broadband and video to 100 million U.S. consumers and 3 million businesses.

In the most recent quarter, AT&T’s revenue declined 5.7% year-over-year, largely reflecting the separation of its U.S. video business. But the bottom line benefited from cost reductions, as adjusted earnings-per-share increased 14.5% year-over-year.

AT&T is in the process of transforming its business model to simplify its operations on its core telecom services, while improving the company’s balance sheet. In May, AT&T announced a merger of its WarnerMedia assets, with Discovery, Inc. (NASDAQ: DISCA) to create a new global entertainment company.

Under the terms of the transaction, AT&T will receive $43 billion in a combination of cash, securities and retention of debt.  AT&T shareholders receive stock representing 71% of the new company, with Discovery shareholders owning 29%.

The new company expects $52 billion in 2023 revenue and the transaction is expected to close in mid-2022.

In the meantime, shares of AT&T have an exceptionally high yield of 8.2%. We also expect the company will grow its earnings by 3% per year. Lastly, shares of AT&T have a low valuation, with a price-to-earnings (P/E) ratio below 10. We believe an expansion of the P/E multiple to 11, in combination with earnings-per-share growth and dividends, could lead to total annual returns above 15% per year over the next five years.

Dividend Aristocrat #2: Walgreens Boots Alliance (NASDAQ: WBA)


Walgreens Boots Alliance is the largest retail pharmacy in both the United States and Europe. The company has more than 13,000 stores in the United States, Europe and Latin America.

Walgreens has increased its dividend for 46 years in a row. Shares currently yield 3.8%.

The company recently concluded its fiscal year. In the fiscal fourth quarter, Walgreens’ sales increased 13% from the same quarter a year ago, while adjusted earnings-per-share rose 15%. For the full year, Walgreens generated $132.5 billion in sales, an 8.6% increase compared to fiscal 2020. Adjusted earnings-per-share equaled $5.31 versus $4.74 prior.

Going forward, we expect 5% earnings growth per year. The company’s pharmacy segment will likely be its primary growth driver. In the fiscal fourth quarter, pharmacy sales increased 6.7% and comparable pharmacy sales jumped 8.9% compared with the year-ago quarter.

The company’s continuing growth means the dividend payout is sustainable over the long-term. With an expected dividend payout ratio below 40% for the upcoming fiscal year, Walgreens’ dividend payout is safe, with room for continued growth. The fact that people will always need health care products and prescriptions means Walgreens should continue to increase its dividend, even during recessions.

Dividend safety is also boosted by the company’s strong balance sheet. As of the most recent quarter, Walgreens held $1.2 billion in cash, $15.8 billion in current assets and $81.3 billion in total assets against $22.1 billion in current liabilities and $57.5 billion in total liabilities. Long-term debt stood at $7.7 billion.

With a forward P/E of 9.3, we view WBA stock as undervalued, with a fair value P/E multiple of 10. In addition to earnings growth and dividends, we see expected returns above 10% per year for WBA stock.

Dividend Aristocrat #3: Becton, Dickinson & Company (NYSE: BDX)

Our final Dividend Aristocrat is Becton, Dickinson & Company, a giant medical device manufacturer. It operates in 190 countries, with annual sales above $19 billion. The company operates three core segments: Medical, Life Sciences and Intervention.

For the fiscal fourth quarter, BDX’s revenue rose 7.5% year-over-year. For the full fiscal year, revenue grew 18.4% to $20.3 billion. Adjusted earnings-per-share of $13.08 marked a 28.2% jump from the prior year.

The Medical segment grew 7.7% to $2.5 billion due to gains in Medication Delivery Solutions and Pharmaceutical Systems. The Life Science business grew to $1.5 billion, up 1.5%, or nearly 16%, when not including COVID-19 testing. In addition, Interventional increased 8.3% to $1.1 billion.

The company released guidance for fiscal year 2022, expecting adjusted earnings-per-share of $12.30 to $12.50 for the year. At the midpoint of the guidance, shares currently trade for a P/E of 19.6. While BDX has a relatively high valuation multiple, we see the premium as warranted, given the company’s industry leadership and strong growth rates. We expect 10% in annual EPS growth going forward.

BDX recently increased its dividend for the 50th consecutive year. This means BDX now qualifies for Dividend King status. Shares currently yield 1.4%. While this is the lowest-yielding Dividend Aristocrat of the three featured in this write-up, BDX makes up for it with strong dividend growth. Its recent dividend increase was a solid 5%.

BDX has durable competitive advantages, which have fueled its long history of dividend growth. For example, the company owns over 29,000 patents. It invests over $1 billion annually in research and development to continue its industry leadership. And lastly, it manufactures over 45 billion devices each year.

We expect annual returns of 10.1%, comprised of 10% expected EPS growth, the 1.4% dividend yield and a small -1.1% reduction from a declining P/E multiple.

Final Thoughts


With inflation perking up, it’s a good idea for investors to make sure their portfolios are well-positioned to absorb the impact of rising prices. Dividend growth stocks are one way to accomplish this, as companies that can grow their dividend payouts will protect their investors’ purchasing power. The three Dividend Aristocrats in this article have long histories of dividend growth and market-beating yields.


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