Three Dividend Stocks Offering Stability Amid Inflation

Inflation has significantly impacted the cost of goods and services over the past few years, leaving many families struggling to maintain their financial stability. One potential solution is to invest in dividend stocks, which can provide a steady stream of passive income to help offset rising expenses. The best dividend stocks are typically companies with strong competitive advantages and a history of consistently increasing dividends, backed by sufficient free cash flow to support these payments.

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Including dividend stocks in your investment strategy can not only help buffer against inflation but also provide some additional funds for discretionary spending. Below are three compelling dividend stocks worth considering for your portfolio.

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1. Medtronic (NYSE: MDT)

Medtronic is a leading manufacturer of medical devices across various specialities, including cardiovascular, diabetes, and neurological sectors. This company has raised its dividend for an impressive 47 consecutive years, currently offering a quarterly dividend of $0.70 per share.

In fiscal 2022, Medtronic’s net sales totaled $31.7 billion but increased slightly to $32.4 billion by 2024. However, net income dropped from $5 billion to $3.7 billion due to rising costs. Despite this decline, Medtronic generated consistent free cash flow, averaging about $5.3 billion annually, allowing it to pay out $3.67 billion in dividends for fiscal 2024—70% of its free cash flow, indicating sustainability.

As inflation began to ease, the company reported an earnings boost for the first half of fiscal 2025. Revenue reached $16.3 billion, a 4% increase year over year, while operating income rose to $2.9 billion, reflecting a 10.2% increase. Net income soared by 36% to $2.3 billion, with free cash flow jumping 41% to $1 billion, which should support its ongoing dividend growth.

Medtronic has also achieved close to 120 product approvals over the past year, strengthening its product range. Interim CFO Gary Corona indicated a focus on improving margins and increasing productivity by centralizing operations, consolidating facilities, and targeting strategic acquisitions for future growth.

2. General Dynamics (NYSE: GD)

General Dynamics operates globally in the aerospace and defense sectors, producing a range of products related to business aviation, shipbuilding, and weapon systems.

Since 2021, General Dynamics has seen its revenue climb from $38.5 billion to $42.3 billion, with earnings growing modestly from $3.26 billion to $3.32 billion during the same period. The company consistently generated free cash flow, which increased from $3.4 billion to $3.8 billion across three years, helping to support its dividend, which has increased annually for 27 years, now at $5.68 per share—a 7.6% increase.

For the first nine months of 2024, General Dynamics reported revenue of $34.4 billion, up 12.3%. Operating income rose to $3.4 billion, while net income increased by 14% to $2.6 billion. The business generated positive free cash flow of $1.4 billion.

General Dynamics has secured significant contracts with the military, including a contractor logistics support agreement and a $5.6 billion deal with the U.S. Air Force for modernization efforts. This strong contract portfolio enhances General Dynamics’ stability and offers reassurance for ongoing dividend increases.

3. Illinois Tool Works (NYSE: ITW)

Illinois Tool Works is an industrial manufacturing firm producing products across seven sectors, including automotive and construction.

Like General Dynamics, this company has also demonstrated steady financial performance with revenues rising from $14.4 billion in 2021 to $16.1 billion in 2023, and net income increasing from $2.7 billion to $3 billion. Free cash flow improved significantly, climbing from $2.3 billion to $3.1 billion, thus enabling dividends to grow every year for nearly three decades, reaching $5.42 in 2023 from just $0.16 in 1995.

In the first nine months of 2024, Illinois Tool Works faced a slight revenue decrease to $12 billion but reported a 6% increase in operating income to $3.2 billion. Net income surged 22% to $2.7 billion, with free cash flow at $1.8 billion. The company has raised its dividend for the 29th consecutive year to $6 per share.

Looking ahead, Illinois Tool Works has ambitious growth plans, targeting 4% to 7% organic growth from 2023 to 2030, with potential acquisitions planned to bolster this growth. The company aims for a total shareholder return of 11% to 13% per year by 2030, driven by steady earnings growth and consistent dividend increases.

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*Stock Advisor returns as of December 23, 2024

Royston Yang has no position in any of the stocks mentioned. The Motley Fool recommends Illinois Tool Works and Medtronic. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.