3 Safe Stocks to Buy as a Hedge Against Inflation

  • To hedge inflation, don’t just seek safe stocks to buy. Find safe stock funds to buy.
  • S&P 500 Dividend Aristocrats ETF (NOBL): Holds companies that have grown dividends for at least 25 consecutive years.
  • iShares Select Dividend ETF (DVY): One of the few ETFs in the green for 2022.
  • S&P 500 ETF (SPY): It’s been trouncing inflation with growth and dividends for decades.
close-up of the phrase "exchange traded fund" on three colorful papers pinned to a wall by colorful pushpins
Source: shutterstock.com/bangoland

Sky-high inflation has consumers clamoring for ways to protect their purchasing power. If you’ve come seeking a solution, take heart. The answer lies in harnessing the inflation-beating and wealth-building magic of the capital markets.

Historically, it’s not gold, bonds, or real estate that have been the best inflation fighter, but stocks. Owning equity in the world’s great companies has proven the most effective way to stave off the inflation monster. Below, I will share three intelligent stocks to buy that will continue to grow beyond the inflation rate.

The long-term average rate of inflation in the U.S. is 3%. Fighting it, then, is a simple matter of owning an asset that has consistently grown more than 3%. Over the past 50-plus years, stocks have climbed in value far more than the alternatives, making them the clear winner and surest bet moving forward.

Picking individual companies carries far more risk than purchasing a diversified basket. Thus, I recommend buying stock ETFs. Here are three to consider:

Ticker ETF Price
NOBL S&P 500 Div. Aristocrats $87.50
DVY Select Dividend $124.20
SPY S&P 500 $390.87

Stocks to Buy: S&P 500 Dividend Aristocrats ETF (NOBL)

Dividend Aristocrats ETF (NOBL) stock chart with long-term trading range
Source: The thinkorswim® platform from TD Ameritrade

Dividend Yield: 1.56%

The S&P 500 Dividend Aristocrats ETF (NYSEARCA:NOBL) offers exposure to 64 top-shelf companies with a history of growing their dividends for at least 25 years. Consistently increasing income doesn’t occur in a vacuum. It’s born of earnings that rise with inflation, robust fundamentals, and a stable business model.

The companies comprising NOBL are not new and speculative entrants to the public sphere but titans of industry with a history of helping investors outpace inflation. That put it on the list of stocks to buy.

In setting your expectations, it’s important to note that NOBL and equities, in general, can suffer in periods of high inflation. But they don’t stay down. Like the ones held by the Dividend Aristocrats ETF, high-quality companies do a great job at passing along rising costs to the consumer, thus keeping their profit margins and earnings prowess intact.

iShares Select Dividend ETF (DVY)

iShares Select Dividend ETF (DVY) with long-term uptrend.
Source: The thinkorswim® platform from TD Ameritrade

Dividend Yield: 2.84%

If you equate volatility with risk, and if your objective is to seek a less risky way to fight inflation, then the iShares Select Dividend ETF (NASDAQ:DVY) is worth a look. It’s one of the rare ETFs that is positive on the year.

Moreover, its volatility has been remarkably muted. The relative strength is mainly due to the heavy exposure to utilities, consumer staples and energy. The fund holds 99 large-cap stocks that have at least a 5-year track record of paying dividends.

Stocks to Buy: S&P 500 ETF (SPY)

S&P 500 ETF (SPY) with steep discount.
Source: The thinkorswim® platform from TD Ameritrade

Dividend Yield: 1.39%

Equities reward investors through both dividends and price appreciation. Those who focus solely on dividend stocks to buy can miss out on many companies that have historically delivered rich rewards through stock gains. If you want both, consider buying the S&P 500 ETF (NYSEARCA:SPY), which offers a beautiful blend of income and growth. According to Ibbotson Associates, the S&P 500 has gained approximately 10% per year since 1926.

You’ll be well-prepared to capture inflation-beating gains if it does anything of the sort moving forward. Of course, you will have to deal with the occasional bear market, but if you have a long-term time horizon and can look past short-term speed bumps, then SPY is an intelligent way to go. This year’s bloodbath provides a much cheaper entry with large caps nearly 20% off the highs. Valuations have come in, and it paints a rosier picture for returns moving forward.

On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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