Buy these 7 stocks now for reliable income as high inflation stays 'alive and well' in 2023, says the manager of a top-8% dividend-focused fund

  • Inflation undershot expectations in October, which propelled stocks upwards last week.
  • But Mike Morey, CIO of Integrity Viking Funds, warned that inflation could linger next year.
  • Here are seven dividend stocks to buy now that will provide income in any setting.

US stocks enjoyed their best week in five months after a report released last Thursday showed that inflation was lower than expected in October.

But while some top Wall Street firms think that rampant price growth is finally fading, others like Mike Morey, the chief investment officer at Integrity Viking Funds, aren’t so sure.

“One concern is going to be that inflation may just linger longer than many people expect,” Morey said in a recent interview with Insider. “And even if the Fed does get it under control to some extent, it’s still going to be alive and well.”

Regardless of whether inflation dies down or stays strong in 2023, Morey — who also co-manages the Integrity Dividend Harvest Fund (IDIVX) — said that he’s sticking to the investing process that’s helped his fund earn a place in the top 8% of its category this year, according to Morningstar.

“We’re not going to be making drastic moves given where we’re at in this cycle simply because we’re owning quality companies with long histories of raising their dividends, and we’re focused on paying above-average income to our shareholders and providing growth of that income over time,” Morey said.

Where to invest as inflation remains a threat

When Morey spoke with Insider in late July, he shared his investing strategy as well as six sectors that he liked most: consumer staples, energy, financials, healthcare, technology, and utilities. Having exposure to consumer staples, energy, and utilities names helped his fund outperform, he said, as did careful selection within healthcare and communication services.

Nearly four months later, Morey’s sector preferences are evolving but mostly remain unchanged.

Consumer staples names became a favorite of investors during this historically tough year for risk assets, as evidenced by the sector’s relatively high earnings multiple. While Morey still wants to be overweight the defensive group, he said he’s reduced exposure to it in the past year.

“It could be nothing is wrong with the companies but you just have multiple compression on a broad basis that causes the share prices to fall,” Morey said.

On the other side of the valuation spectrum are energy stocks. Morey said they’re still dirt cheap, even after rising nearly 70% in 2022. Energy stocks contribute about 10% of the S&P 500’s earnings but make up just 5.4% of the index, Morey said, which implies that there’s a disconnect between where companies in the sector are trading and their underlying earnings.

“From a valuation standpoint, you can’t get much cheaper than the energy sector comparing it to the rest of the S&P 500 sectors,” Morey said.

Energy names will be a strong bet if inflation persists in the coming year, as Morey suspects. He said he’s “cautiously optimistic” about the sector because supply-demand dynamics remain strong, though the sector is not without risk. Oil prices could swing wildly in the coming months as reserves get released while the Organization of Petroleum Exporting Countries (OPEC) cuts production, Morey said. Still, there are few better ways to hedge against higher prices.

“It’s highly likely we’re going to see some severe volatility within the energy sector, but on a net basis, we do find that area still attractive,” Morey said.

Healthcare is another outperforming sector that Morey said he’s still constructive on because of its unique combination of defensiveness and growth. A divided government would benefit the sector by limiting legislation about drug price regulation, Morey added.

Technology stocks have mostly gotten crushed this year, though Morey is starting to see several stocks with attractive long-term outlooks become enticing once again on a valuation basis.

“Not trying to call the bottom, but these names are becoming attractive enough where we’re going to start dollar-cost averaging our way and increasing our exposure,” Morey said. “Because from a longer term perspective, we do see the opportunity there.”

Utilities have beaten the market this year despite a precipitous 20% selloff from mid-September to mid-October. Although their yields aren’t as strong as they’ve been in the past, Morey said utilities now provide better growth and are therefore worth including in a portfolio.

7 top dividend stocks to buy now

Below are the seven dividend stocks that Morey is bullish on right now from among his sector preferences, along with the ticker, market capitalization, dividend yield, and investment thesis for each.

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