Down Debt

Inflation hits a 40-year high. Here’s where to invest your money now.

Living in America is becoming more expensive at an alarming rate.

The consumer price index, which measures the cost of a wide range of goods and services, jumped 9.1% in June. This is the largest year-over-year increase since 1981.

The Federal Reserve, desperate to keep inflation from running wild, raised interest rates by three-quarters of a percentage point last month. The central bank has indicated that it will continue to raise borrowing costs until inflation is brought under control. The Fed’s plan, however, could drag the economy into a recession by reducing business investment and denting consumer demand.

Faced with the prospect of persistently high inflation and a slowing economy, many investors bailed out their stocks. In turn, the first six months of 2022 marked the worst first half for the stock market in five decades.

It is certainly not easy to invest in such a difficult economic environment. But there are always smart things you can do with your money. Here are three solid dividend-paying stocks you can buy today that can add ballast to your investment portfolio during these volatile times.

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ExxonMobil

Higher oil and natural gas prices have been the main drivers of inflation this year. So one way to protect your wealth is to invest in an energy stock that will profit from these trends.

Buy shares of ExxonMobil (XOM -0.76%) could be a great way to do that. The oil and gas titan generated a whopping $14.8 billion in operating cash flow and $10.8 billion in free cash flow in the first quarter alone. This represented year-over-year growth of 60% and 57%, respectively.

Exxon passes much of that money on to shareholders via stock buybacks and a hefty 4% dividend yield. It is also repaying its debt, thereby strengthening its balance sheet and reducing risk for its investors.

Even better, Exxon’s profits are so bountiful that it can also afford to reinvest tens of billions of dollars each year to fuel its growth initiatives. The energy giant plans to spend up to $25 billion a year over the next half-decade to find and produce more oil and natural gas. If energy prices remain high, which seems likely, Exxon should continue to deliver healthy earnings to its shareholders in the years to come.

McDonald’s

Higher costs for things like energy, food, and housing are driving many people to trade when they can. In this type of inflationary environment, the value-driven menu of McDonald’s (MCD 0.20%) is particularly appealing to cash-strapped consumers.

Sales at the fast-food giant’s existing restaurants rose 12% year-over-year in the first quarter. Its adjusted net income, in turn, jumped 19% to $1.7 billion, or $2.28 per share.

McDonald’s is gaining market share not only because of its low prices, but also because of its emphasis on convenience. Automated drive-thru lanes, delivery services and an increasingly popular mobile app allow the burger giant to serve more people more often.

Like Exxon, McDonald’s passes its profits on to its shareholders through stock buybacks and an ever-increasing dividend. The company has increased its cash payout to shareholders for an incredible 45 consecutive years. Its shares are currently yielding a respectable 2.2%.

Clearly, McDonald’s has a proven ability to deliver a steady stream of dividend income to its investors in all sorts of market environments. And if the economy slips into a recession, the need to cut costs is likely to entice more people to dine at its restaurants. This ability to perform relatively well during economic downturns makes McDonald’s a highly defensive investment, and one that can help protect your wealth today.

Wholesale Costco

Like McDonald’s, Costco Wholesale (COST 0.05%) tends to profit when buyers go in search of bargains. The discount warehouse chain offers its members a curated selection of high-quality products at great prices. Not surprisingly, given the current economic climate, business is booming.

Costco’s net sales jumped 20.4% to $22.8 billion in June. Even excluding the impact of gas prices and currency fluctuations, the retailer’s same-store sales increased an impressive 13%.

Costco’s scale allows it to purchase goods at bargain prices. It then sells these items to its members at prices slightly above its cost. This makes it difficult for its competitors to match its prices.

Most of Costco’s profits come from its membership fees. For $60 per year, members can access the company’s offers. Those charges totaled $984 million during Costco’s fiscal third quarter, which ended May 8, and accounted for the lion’s share of its $1.4 billion net profit. They also allowed Costco to reward shareholders with an ever-increasing quarterly cash payout and large special dividends over time.

Costco’s nearly 90% membership renewal rates are a testament to the tremendous value it provides to its customers. The retail titan’s loyal membership base should help it generate further sales and earnings growth in the years to come, as well as strong long-term returns for its investors.