Kevin Warsh's Inflation Stance Makes These Cheap Dividend Stocks Look a Lot More Attractive

After 100 days at the head of the Federal Reserve, Kevin Warsh gave a speech outlining the economic situation. While employment has been stable, which is positive, Warsh was clearly more concerned about inflation: "Inflation is running above our 2 percent target. So the Fed's predominant focus right now should be on prices."

He went on to note that, "Price stability is not self-executing, nor is inflation necessarily mean-reverting. It is the Fed's job to deliver stable prices." The key Fed tool for dealing with inflation is adjusting interest rates, which is a blunt instrument, at best. With one rate increase already in the books, it seems likely that more are on the way. Which is why investors may want to consider high-yield healthcare stocks like Medtronic (NYSE: MDT) and Pfizer (NYSE: PFE). Here's a look at each one.

Healthcare isn't an option

When inflation is running hot, meaning costs are rising, consumers attempt to tighten their budgets. That is less of an issue in the healthcare sector because people are dealing with quality-of-life issues and, sometimes, even life or death issues. Essentially, spending on healthcare is far less optional than whether you buy a brand-name soda or the store-brand version.

That's not to suggest that healthcare stocks are immune to headwinds. In fact, the reason Medtronic and Pfizer have well-above-market yields of 3.2% and 6%, respectively, is that they are dealing with company-specific problems. However, that's actually what creates the value opportunity here for income lovers with long investment time horizons.

Medtronic is turning back to growth

Medtronic is a large and diversified medical device maker. Over the years, its business grew bloated, and growth slowed. Investors dumped the stock, even though management acknowledged the problem and was working to address it. Non-core assets were sold as the company worked to streamline and refocus on its most profitable and fasted growing divisions.

It was a fairly long process, and investors have taken a show-me stance. But the company is executing well on the turnaround, with fiscal 2026 producing the highest annual revenue growth in 10 years. The fiscal first quarter of 2027 continued the good news, with 13.7% revenue growth. But for dividend investors, the biggest positive is that Medtronic has increased its dividend for 49 consecutive years, just one year shy of Dividend King status. This is a reliable dividend stock with an attractive yield and a business that is starting to show signs of renewed strength.

Pfizer has more work to do

Pfizer is a large and well-respected pharmaceutical company. It is dealing with fairly typical headwinds in the sector, as it has drugs losing patent protection but few new drugs to offset the resulting revenue hit. It is a timing mismatch: patent expirations follow a schedule, but drug discovery and development do not. Investors are worried that the company won't be able to support its dividend through this difficult period.

That's not unreasonable; however, the company has stated explicitly that it intends to support the dividend. And it has a large cash hoard (roughly $11 billion at the end of the second quarter of 2026) to help bridge the gap. Given the company's long and successful history of developing new drugs, the lofty yield seems worth the risk for more aggressive income investors.

People are likely to keep paying to live better lives

To bring the story back to the core theme, Kevin Warsh is clearly telling investors that costs are rising, and that isn't a good thing. However, all expenses are not viewed the same way. Some are optional, others are not. Healthcare generally falls into the not optional camp. For dividend investors, that should make high-yield Medtronic, which appears to have turned around its business, and Pfizer, which is still working to deal with drug expirations, attractive right now.

Reuben Gregg Brewer has positions in Medtronic. The Motley Fool has positions in and recommends Medtronic and Pfizer. The Motley Fool has a disclosure policy.