BofA Securities Predicts Stagflation May Return: Consider These 4 Dividend Stocks for Strong Performance
If you were a fan of That ‘70s Show, brace yourself, as a revival of sorts might be coming—but it’s likely not the type you’d want to watch. Bank of America Securities suggests that stagflation, reminiscent of the 1970s, could be making a return. Stagflation, which combines a stagnant economy with persistent inflation, is becoming a real concern on Wall Street, especially as inflation remains sticky at around 3%.
Key Takeaways:
- Inflation remains below the June 2022 peak of 9.1%, but it is stuck around 3%.
- Federal Reserve rates are expected to stay at current levels throughout the year.
- Certain sectors, including commodities and aerospace, tend to outperform in stagflation periods.
Could your portfolio withstand stagflation’s return? It might be worth discussing with a financial advisor.
The Risk of Stagflation: A Closer Look
According to BofA Securities, the ingredients for stagflation today mirror those of the 1970s. High inflation, rising commodity prices, massive budget deficits, and increased government spending are all contributing factors. Given these conditions, shifting focus to dividend stocks that tend to perform well during stagflation could be a wise move. Several sectors, such as real estate, defense, and energy, are historically better positioned to navigate these challenges.
The Importance of Dividend Stocks
Dividend stocks are highly regarded for offering reliable passive income, providing investors with a consistent revenue stream. Passive income helps diversify financial strategies and is particularly appealing for those seeking financial independence.
Top 4 Dividend Stocks for Stagflation
1. Digital Realty Trust (DLR)
Digital Realty Trust is a top choice for AI exposure and offers a solid 2.95% dividend. The company owns and operates carrier-neutral data centers worldwide, offering solutions for data storage and interconnection. Key clients like AMD, Nvidia, and Oracle depend on Digital Realty for their data center needs.
- Global Reach: Over 300 facilities in 50 metro areas across 25 countries.
- Growth Plans: Recently broke ground on a new AI-focused data center in Japan, set to open in December 2025.
- Rating: JPMorgan has an Overweight rating with a $190 target price.
2. Enterprise Products Partners (EPD)
This midstream energy giant pays a 6.45% dividend and provides various services like transporting and storing natural gas and crude oil pipelines. Enterprise Products Partners is a leading player in the energy sector, benefiting from essential infrastructure needs.
- Stability: High distribution coverage ratio makes it a safer bet in the MLP sector.
- Rating: Truist Financial gives it a Buy rating with a $40 target price.
3. Lockheed Martin (LMT)
Lockheed Martin, a global leader in aerospace and defense, offers a 2.65% dividend and remains a top stock pick for investors seeking stability. As the Pentagon’s primary contractor, Lockheed Martin is deeply embedded in national defense, ensuring a steady stream of government contracts.
- Defense Contracts: A major supplier to the Army, Air Force, and Navy.
- Rating: JPMorgan gives it an Overweight rating with a $535 target price.
4. Prudential Financial (PRU)
With a 4.95% dividend, Prudential is a safe investment for conservative investors. The company provides insurance and investment management services globally, ensuring steady cash flow even during economic uncertainty.
- Diversified Segments: Offers a wide range of products, including life insurance, retirement planning, and investment management.
- Rating: Jefferies has a Buy rating with a $152 target price.
These four stocks are well-positioned to perform during periods of stagflation, offering solid dividends while navigating the challenges of a sluggish economy.
