The past few years have been great for dividend-paying stocks of large companies, which have outperformed the Standard & Poor’s 500 index thanks, in part, to very low inflation. But early signs of somewhat higher inflation threaten to derail many of those stocks. In the 12 months through March, the Consumer Price Index rose 2.4%, compared with a 0.9% rise one year ago and a 0.1% drop the year before that.

Rising inflation hurts stocks of companies such as utilities and providers of consumer staples that can’t raise their dividends fast enough to keep pace with accelerating inflation. Their stocks are already falling out-of-favor and have trailed the performance of the broad market over the past year.

Better: Consider faster-growing dividend payers in sectors such as financials and consumer luxury. My favorites now…

CME Group (CME) operates futures and options exchanges that allow investors to speculate on the direction of interest rates, stocks, energy and commodities. Rising inflation is closely linked with higher volatility in the financial market, which boosts trading volumes and revenues. Recent yield: 2.3%.

Daimler (DDAIY), the German maker of Mercedes-Benz cars and trucks, is the best-positioned of the global car manufacturers to raise its vehicle prices if inflation takes off in the US and/or other developed nations. –Recent yield: 4.8%.

JPMorgan Chase & Co (JPM). Higher inflation usually leads to higher interest rates. Banks increase what they charge on loans and credit cards much faster than the yields they pay on deposit accounts. Among US banks, Chase is the largest by total assets and the largest issuer of credit cards. Recent yield: 2.2%.

Related Articles