Investors may have turned for a moment from Russia’s aggression in Ukraine to energy and supply shortages in the U.S. that are producing high inflation.
With purchasing power crumbling, patient investors might be well-served by seeking out stocks with attractive dividend yields of companies that are expected to grow sales and earnings quickly while also generating free cash flow in excess of the dividend payouts. A screen of 12 of those stocks is below.
On March 10, the Bureau of Labor Statistics said the consumer price index in February was up 7.9% from a year earlier, for a new 40-year inflation high.
You can read the entire Consumer Price Index summary here.
Some consumers (and investors) won’t be affected by every aspect of price increases incorporated in the CPI. For example, your housing expense may not increase this year and you might not spend much on clothes. Then again, your personal inflation rate may well be higher than 7.9% when you factor in rising expenses for fuel and insurance.
Regardless of how you are affected by inflation, you might find stocks with dividend yields of 3.5% or more attractive, especially when the companies have enough expected cash flow to cover even higher payouts. That 3.5% threshold compares favorably with a yield of about 2% on 10-year U.S. Treasury notes
BX:TMUBMUSD10Y.
Stock screen
According to weighted aggregate consensus estimates compiled by FactSet, the S&P 500
SPX
is expected to increase sales by 10.9% and earnings per share by 20% in 2022.
For an expanded base of companies for a screen, we looked at the S&P Composite 1500 Index
XX:SP1500,
which is made up of the S&P 500, the S&P 400 Mid Cap Index
MID
and the S&P 600 Small Cap Index
SML.
We then limited the list to companies expected to increase sales and EPS more quickly than the S&P 500 during calendar 2022, with dividend yields of at least 3.5% that are well-covered by estimated free cash flow.
We did the last part of the screen by comparing…
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