These three dividend stocks are leaving inflation in the dust.
Warren Buffett has called inflation “a gigantic corporate tapeworm” that eats into wealth, leaving only the illusion of profits. He used an analogy to show this, saying that if you buy stocks with money that could buy 10 hamburgers, and later sell for an amount that can also buy 10 hamburgers, then, “You may feel richer, but you won’t eat richer.”
Today, the annual rate of inflation stands at 2.9%, per Consumer Price Index data released in September. Since the COVID-19 pandemic hit in February 2020, prices have risen by about 25%.
This raises the question: Did companies that nominally raised dividends by less than that amount really increase their dividend in the most important sense?
Image source: Getty Images.
Fortunately, some companies have achieved dividend growth since 2020 that has outpaced inflation. Here are three inflation-thrashing stocks that are keeping investors several steps ahead of rising prices.
1. McDonald’s: A fast-food giant
Since 2020, McDonald’s (MCD -0.21%) has increased dividends from $1.25 to $1.77 per share, a 41.6% increase. Not only is that well ahead of the roughly 25% inflation seen in that period, but it’s enough to give the company a dividend yield of 2.36% compared to the 1.25% S&P 500 (^GSPC -0.28%) average.
McDonald’s has raised its dividend annually for 49 years running, including a 6% increase in 2024. Its payout ratio of 59.8% means that it’s only paying out that percentage of net income to cover its current dividend, leaving plenty from last quarter’s $8.4 billion in net income for expansion plans such as its “Accelerating the Arches” plan to open roughly 10,000 new restaurants by 2027. Announced in 2023, there are strong signs that this expansion, the fastest for McDonald’s in the company’s 70-year history, is working.
While the company hasn’t consistently grown earnings in recent years (earnings fell by 1.47% in 2024), McDonald’s added 1,600 new stores last year, and last quarter, global comparable sales increased by 3.8%, while earnings rose by 11.4% on a year-over-year basis. With this growth, just as thousands of new stores prepare to open in 2026 and beyond, McDonald’s is well-positioned to grow its dividend for the 50th year running in 2025, likely at a rate that beats inflation once more.
2. American Express: A premium payments company
Since 2020, American Express (AXP 0.10%) has increased its dividend from $0.43 to $0.82 per share, a 91% increase. But the growth hasn’t been annual; it kept payouts flat for 2020 and 2021, until 2022, when management announced a 21% dividend increase after heralding “growing confidence in our prospects.” And since 2023, the company has raised dividends by the mid-to-upper teens each year.
If there’s a wrinkle, it’s that its current dividend yield of 0.96% is somewhat below the average yield of the S&P 500, due to American Express’s surging share price in recent years. But management has a plan to more than double its dividends by increasing its payout ratio to a 20% to 25% target. The new policy, announced in January 2025, could deliver income for shareholders that continues to dramatically outpace the rate of inflation.
Last quarter, American Express grew its earnings by 17% year over year, excluding earnings from the sale of its antifraud platform, Accertify, in 2024. It grew revenue by 9%, while acquiring 3.1 million new cards that quarter. With its earnings growth showing no sign of slowing, there’s no reason its dividend-hiking spree should slow down, either.
3. Microsoft: An “Age of AI” leader
Tech giant Microsoft (MSFT -0.54%) became the second company to hit $4 trillion in market capitalization in July, and proceeded to announce a 10% dividend increase in September. All told, it’s raised its dividend by 62.5% since 2020.
The company is enjoying a windfall from tapping into the global artificial intelligence (AI) revolution, with CEO Satya Nadella calling Cloud and AI the “driving force of business transformation across every industry and sector.” Azure, the company’s cloud-based service allowing developers to run OpenAI models using Microsoft’s infrastructure, saw $75 billion in revenue for the quarter ended June 30, a 34% increase year over year. Microsoft Cloud revenue amounted to $46.7 billion, a 27% rise year over year.
Like American Express, Microsoft shares have surged enough in recent years to drive down its dividend yield to under 1%, even amid robust dividend growth. But with its payout ratio of just 23%, Microsoft looks well-positioned to continue ramping up its dividends, so investors who buy the stock today could set themselves up for a hefty income stream in the years ahead.
Three inflation-busters
With robustly growing earnings, ambitious plans for expansion, and proven records of rewarding shareholders with significant dividend growth, all three companies are well-positioned to continue their dividend-growing hot streaks. For investors seeking dividend income that can significantly outpace inflation, these three stocks are buys.
William Dahl has no position in Microsoft, McDonald’s, or American Express. American Express is an advertising partner of Motley Fool Money. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.