3 Safe Dividend Stocks to Beat Inflation

Has inflation got you scared? If you’re an investor, it should. With inflation running at an annualized rate of 7.9% for the 12 months ending in February, that would outpace the growth of many investments. To help counter that, you might want to consider dividend stocks, especially those with yields of 8% or more that have safe, sustainable payout ratios for those yields. They should also demonstrate safety with at least three consecutive years of dividend growth and at least four straight years of revenue growth.

Camping World Holdings (NYSE: CWH), OneMain Holdings (NYSE: OMF), and Arbor Realty Trust (NYSE: ABR) all passed those metrics, and all three are attractively priced based on their price-to-earnings (P/E) ratios.

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1. Camping World Holdings’ dividends travel well

Camping World Holdings is the largest retailer of recreational vehicles (RVs) in the United States. It sells new and used RVs, including their parts and accessories, and services RVs. During the pandemic, Camping World’s business boomed as families looked for safer ways to vacation. While Camping World’s shares have dropped 30% so far this year, the company’s business hasn’t slowed even with COVID-19 cases on the decline.

What the price drop has done, however, is make the stock a better buy with a price-to-earnings (P/E) ratio of 4.46, compared to the auto and truck industry P/E average of 55.50. I think the stock’s price drop has more to do with what investors expect to happen than what is happening, as the industry still has a backlog of RV orders.

Camping World just raised its quarterly dividend by 25% to $0.625 per share, giving it a yield of 8.73% as of Friday’s share price. The company has increased revenue every year since it went public at the end of 2016 and more than tripled its annual net income over that period. There’s plenty of room for more growth, too, as the company’s dividend payout ratio is only 22.1%.

In 2021, the company reported revenue of $6.9 billion, up 26.9% over 2020. Net income was listed at $642.1 million, up 86.5% over the prior year, and annual earnings per share (EPS) was $6.07 compared to $3.09 in 2020.

Business doesn’t appear to be slowing yet, despite the increased cost of gas and lowered COVID-19 cases. The company reported a record $1.4 billion for the fourth quarter, up 21.5% year over year, with net income of $59.3 million, up 46.9%, and EPS of $0.90, compared to EPS of $0.48 for the same period in 2020. Another thing that helps buoy the stock is that, in January, the company’s board of directors authorized an increase in the original $225 million stock repurchase program to spend an additional $152.7 million in stock buybacks.

2. OneMain Holdings is a good place to park an investment

OneMain Holdings is an online and brick-and-mortar finance company with 1,400 locations across 44 states in the United States. It specializes in lending to non-prime customers. The recent rise in interest rates will likely help the company improve its profit margins. The company’s stock price has dropped more than 6% to start this year, giving it a P/E of 4.59, well below the typical financial services sector P/E of 21.86. Like Camping World, OneMain appears to be a good bargain based on the company’s financials.

In 2021, the company reported annual revenue of $3.93 billion, up 0.5% compared to 2020 and its fourth consecutive year of rising revenue, while net income was $1.3 billion, up 78% over the same period in 2020. The company’s annual EPS was $9.87 compared to $5.41 in 2020.

The company just raised its dividend by 36% to $0.95 per share, giving it a yield of 8.15% as of Friday’s share price. Even with the boost, the dividend’s payout is well covered. Based on last year’s EPS, the forward payout ratio is 38.5%. You do have to factor in that OneMain’s dividends are inconsistent, but not in a bad way. The company regularly pays two larger special dividends in two quarters that really help to boost the yield for investors.

Last year, in February, it issued a dividend of $3.95 per share, and then in August, the dividend was $4.20 per share, but the other two quarters were $0.70 per share. In 2020, OneMain issued smaller dividends of $0.33 and $0.45 in the second and fourth quarters but larger dividends of $2.83 in the first quarter and $2.33 in the third quarter.

Like Camping World, OneMain helped stockholders by repurchasing shares last year (6.7 million in total) and said it plans to buy back another $1 billion in shares through 2024.

3. Arbor Realty Trust will grow on you

As a real estate investment trust (REIT), Arbor Realty Trust is a different animal from the two previous stocks, but it has similarly strong financials. It is a mortgage REIT that provides loans and services for multifamily and single-family rental properties. The company’s shares are down more than 7% so far this year, lowering the company’s P/E to 7.29, well below the typical REIT’s P/E.

Arbor reported revenue of $585.3 million last year, up 25.7% over 2020. Over the past five years, it has increased revenue and distributable net earnings every year. Last year, the company reported EPS of $2.28, an increase of 15% year over year, while it spent $1.38 per share in dividends, giving it a payout ratio of 60.5%, which for a REIT is quite low. Like OneMain, Arbor Realty Trust should benefit from rising interest rates, particularly since the average duration of most of its loans is only 24.6 months.

The company has raised its quarterly dividend for 10 consecutive years and increased it for the past seven consecutive quarters, most recently to $0.37 per share, representing a 23% increase over those seven quarters. The current yield on its dividend is a juicy 8.39%.

ABR Total Return Level data by YCharts.

Good choices, but with risks

Any dividend stock with yields this high can pose a bit of risk. Though orders are high for RVs, they could eventually cool off, and that would slow Camping World’s business. Though rising interest rates help OneMain Holdings and Arbor Realty Trust’s profit margins, they could also significantly reduce demand for loans.

Overall, however, all three companies are well managed, and considering their relatively low valuations, those risks have already been factored into the stocks’ prices. Looking at the past three years, they have all kept up with or exceeded the total return rate of the S&P 500, thanks in great part to high-yielding dividends.

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Jim Halley owns Arbor Realty Trust. The Motley Fool recommends Camping World Holdings and recommends the following options: short March 2022 $32 puts on Camping World Holdings. The Motley Fool has a disclosure policy.

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