How to beat inflation with dividend stocks

PUBLISHED Nov 10, 2022, 3:12:44 PM        SHARE

img
imgSimply Investing Blog

Does higher inflation have you worried? Are you concerned that your purchasing power will continue to decrease? Dividend stocks can help you beat inflation.

How much is inflation?

Bloomberg reported the following on July 13, 2022 regarding US inflation: "The consumer price index rose 9.1% from a year earlier in a broad-based advance, the largest gain since the end of 1981." In Canada on July 20, 2022 CBC news reported: "Inflation rises again, to new 39-year high of 8.1%". As you can see inflation in both countries is at its highest in almost 40 years. Here's a look at inflation in the US from the last 25 years:

Source: US Bureau of Labor Statistics

12 month percent change of inflation

What's wrong with high inflation?

According to the Bank of Canada, here are the negative side effects of higher inflation:

  • When prices go up, money can’t buy as much as it used to. This loss of purchasing power hurts everyone’s standard of living.
  • When inflation is high, consumers, businesses and investors are uncertain about what their costs will be from one day to the next. High inflation is often unstable and unpredictable, and that keeps the economy from performing at its best.
  • High inflation makes life especially hard for people whose incomes don’t keep pace with rising prices, such as pensioners and those with low pay. This is because high inflation decreases the value of their incomes and savings.

Are savings account, term deposits (CD), and bonds going to help me fight inflation?

Let's take a look at the current amount of interest you can earn in the following investments:

According to the FDIC, the national average interest rate on savings accounts stands at 0.08% APY (as of June 21, 2022).

Current rates (as of this writing August 1, 2022) for term deposits (CDs) are:

  • 2.30% for 1-year
  • 3.00% for 3-years
  • 3.10% for 5-years

US Government Bond rates are:

  • 2.955% for 1-year
  • 2.874% for 2-years
  • 2.802% for 5-years

With inflation running at 9.1% you can see that your money will be worth less over-time by keeping it in savings accounts, term deposits, or bonds.

How do dividend stocks help me?

Dividends stocks will help you in 3 ways:

  • The current dividend provides you with income
  • An increasing dividend provides you with more income
  • An increasing dividend helps the stock price to rise

Show me the money

Let's take a look at 3 examples, and see how over-time dividend stocks can help you beat inflation.

great dividend beats

Johnson & Johnson in 2012 was paying a dividend of $2.40/share, and the share price was $62.43, the dividend today is $4.52/share, the dividend yield based on the purchase price is 7.24%, and the total return including dividends is over 239%.

As you can see in the table above the total return far exceeds the current rate of inflation. But as dividend investors, we are more concerned with the dividend income rather than the stock price. All three stocks have done an incredible job of increasing their dividends each year, take a look at their consecutive years of dividend increases:

  • AFL, 39 years
  • JNJ, 59 years
  • PEP, 49 years

No one can predict the future, but looking at these 3 companies we can have a high degree of confidence that they will continue to pay dividends, and increase those dividends. In another 5 years we can predict that their dividend yield based on their purchase price might exceed 9.1% and continue to grow in the future.

What's the solution?

In short, the solution is to invest for the long-term, invest in quality dividend paying stocks when they are priced low, then hold for the rising dividend.....you get paid just for owning shares in great companies!

I'm here to help

I can help you to start investing today and focus on selecting the right dividend stocks when they are priced low (undervalued), why re-invent the wheel when you can learn from my 20-years of being in the stock market. I've witnessed first hand the ups and downs of the market, and I know what it's like to start investing your hard earned money. Follow my approach to investing to help you get started right away, so you don't have to wait on the sidelines any longer. I also built the ultimate tool (that I wish I had when I started investing in1999) to help dividend investors focus on quality stocks for long-term growth. The sooner you start investing the sooner you will be on your path to financial freedom.

Did you enjoy reading this article? If so, I encourage you to sign up for my free newsletter and have these articles delivered via email once a month … for free!

Learn how you can avoid the most common (and costly) investing mistakes, download my free guide today: "Are you making these top 5 investing mistakes?"

Originally Posted on simplyinvesting.com


Sound investments
don't happen alone

Find your crew, build teams, compete in VS MODE, and identify investment trends in our evergrowing investment ecosystem. You aren't on an island anymore, and our community is here to help you make informed decisions in a complex world.

More Reads
Procter & Gamble Stock: Recession Resistant Dividend Aristocrat
Image

When volatility grips the stock market, as it has this past year, income investors should focus on quality dividend growth stocks.

Dividend Income Summary: Lanny’s October 2022 Summary
Image

This is what dividend investing is all about! Investing in dividend stocks allows YOU to earn dividend income, the best passive income stream! Bias, you better believe it.

10 Compelling ESG Stocks That Pay Dividends Now
Image

In the world of investing, the goal is always to compound wealth as efficiently as possible. We think the best way to do that is to buy high-quality dividend stocks, reinvest the dividends, and stay the course over a number of years. However, investors can also infuse their own personal preferences or beliefs into their investing strategy, and still make great returns.

What are the Dividend Policies of the Top Utility Stocks
Image

When an income investor researches utility stocks, the dividend policy is an important decision factor. Here are the dividend policies of the top utility stocks and what they say about the stock.

AMC Stock Forecast, Analysis, Price & News | Is AMC stock a buy
Image

Based on the stock performance over the previous 8 years, AMC has traditionally increased by 80.5% during the following 52 weeks. Learn more!

Is Planet Fitness a Buy or Sell? PLNT target price
Image

Based in Hampton, New Hampshire, Planet Fitness (NYSE:PLNT) is an American fitness facility franchisor and operator. Let's explore it!

Dividend Stock Watch List: Lanny’s November 2022 Edition
Image

Welcome back to another dividend stock watch list article! The stock market is still down almost 19% year-to-date, but the last full week of October there definitely was a big push!

Is Verizon a Good Dividend Stock?
Image

Despite the recent uptick, the bear market is still growling in 2022. The Nasdaq and S&P 500 Index are down more than 20% each, while the Dow 30 is doing somewhat better. Consequently, many high-quality stocks’ stock prices have also declined, along with valuations. One such stock is Verizon Communications (VZ), trading near its 52-week low and the lowest price in a decade. But is the stock a value trap, or is Verizon a good dividend stock?

AWK Stock Forecast - Is American Water Works A Good Stock To Buy?
Image

American Water Works (AWK) is a good stock to buy. Investors can take advantage of the lower price of this utility stock and get a stable dividend every quarter. AWK stock forecast is also positive.

Recent Stock Purchase October 2022
Image

As you know by now I make a stock purchase every single month no matter what is going on in the world and despite the doom and gloom headlines. Perhaps I am naive or more of an optimist that we will get through these dark financial times somehow. Either way, I have been busy buying up some stock this month and was happy to put some fresh and recycled capital to work to try and recoup some of my lost dividend income courtesy of the numerous cuts bestowed upon my portfolio in recent years.

October 2022 Stock Considerations
Image

A new trading month is about the begin and boy do we have a seemingly endless crop of stocks that are becoming fair valued to undervalued. The reality of the day is that we’ll continue to see stock prices continue to come down as interest rates rise. No reason to believe interest rates will stop climbing anytime soon.

Dominion Stock Forecast - Dominion Stock Dividend
Image

Dominion Stock Forecast for the upcoming quarters is optimistic. Why is Dominion Energy stock dropping? Let's explore Dominion Stock Dividend!

Five Below stock growth, earning report, buy or sell, and news
Image

Five Below Inc., often known as fiVe BEL°W in abbreviated form. It is a chain of specialist discount stores in the United States. Learn more!

SRE Stock Forecast and the Latest Earnings Report
Image

SRE stock forecast is very impressive as many analysts are expecting this stock to outperform the market. Let's learn how!

STAG Industrial: Perfect Time to Buy This 5% Yielding, Monthly Dividend Paying REIT?
Image

Who is STAG Industrial? STAG is a Real Estate Investment Trust (REIT) that specializes in acquiring and managing industrial properties throughout the United States

Dividend Kings In Focus: Kimberly-Clark
Image

Kimberly-Clark (KMB) increased its dividend for the 50th consecutive year at the start of 2022. As a result, it has joined the list of Dividend Kings.

Is BBY A Buy or Sell? Is Best Buy still the Best Buy For Investors?
Image

On one side, the end of the pandemic revived many businesses to the pre-Covid situation; it has negatively affected the growth of other companies. BBY is one of those businesses affected negatively.

Federal Realty (FRT): A Dividend King REIT
Image

The overall Real Estate Investment Trust (REIT) sector has been down a lot year to date.

The Top Electric Utility Companies Ranked Best to Worst
Image

Electric utilities are a great way to add dividend income to your portfolio. We rank them by the best income investments during these volatile times.

The Best Water Utilities that Pay Dividends
Image

Water Utility stocks are great sources of dividends and can add more stability to an income portfolio

Resources for Publishers
Resources for New Investors
Boosted with BossCoin
Financial Literacy Leaders
user_profile
Wise Intelligent
user_profile
Tom Hamilton
user_profile
Mark Robertson
user_profile
Kevin Matthews II
user_profile
Akeiva Ellis
user_profile
Brendan Dale
user_profile
Kenneth Chavis IV
user_profile
Sharita Humphrey