0

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
Personal Debt and Credit
Image

It’s important to know how to use credit successfully!

October 2022 Passive Income Update – Lower Dividends, Higher Passive Income
Image

The market decided to climb back up this month and then interest rates rose once again. The narrative hasn’t changed both Tiff and Powell have said they aren’t done raising interest rates in previous hikes. Unfortunately Tiff played his cards first hoping Powell would follow suit with a .5% raise and the US raised theirs .75% essentially devaluing our dollar. Inflation for Canadians should rise on this move alone as it now costs us more to buy stuff in usd.

How to Develop Healthy Habits During Retirement
Image

To say that retirement marks a new chapter in one’s life is an understatement. It’s more than revisiting your previous life journeys and achievements while taking an occasional walk or resting on a couch. There are so many ways to make your golden years joyful. Once you develop healthy habits during retirement and practice them daily, your days become brighter and more exciting. So buckle up, and look at the tips we prepared for you!

“Isn’t Personal Finance Pretty Simple?!”
Image

I’m at a party and someone asks me about The Best Interest. I give my usual answer above loving to write about personal finance and investing, and a third chatter says, No offense, but isn’t personal finance pretty simple!? Make a budget. Spend less than you earn. Invest, but keep fees low. Once you know the, like, eight basic rules or whatever it is, then you’re done. I don’t get how there can be so many blogs and books and podcasts. They’re all just re-hashing the same thing!

THE IMPORTANCE OF INVESTING EARLY
Image

Investing is an extremely important part of being wealthy and is how many Americans are able to build wealth and retire. While most Americans know about investing, people often underestimate the power of it and how great of a tool it can be to achieve financial freedom. Additionally, the earlier you start investing, the more powerful it becomes. Because investments grow at an exponential rate, meaning it builds onto itself, investing earlier will leave you with a significant larger retirement sum than if you had chosen to wait.

Is Vanguard In Denial?
Image

I have been writing for a while now about the issue of balanced funds being broken. In 2017, I wrote: Are there ‘suitability’ issues in relation to putting clients into passive multi-asset funds that have massive bond risk? Back in 2008, the real 10-year Gilt yield was around 1%. Although this was low – 10 years earlier real yields were 4% - one could still justify buying Gilts on the basis that the real yield was positive. Fast forward to today and real 10-year interest rates in the UK are close to -2%.

Hedging Interest Rate Risk With Real And Nominal Treasury Yields
Image

The recent rise in real yields for inflation-indexed Treasuries (TIPS) looks compelling for locking in relatively attractive payout rates, but the usual risks with bonds still applies. That inspires looking at a somewhat unorthodox strategy of holding TIPS and conventional Treasuries as a hedging strategy.

How You Can Reduce Your Total Loan Cost [14 Easy Ways]
Image

Whether it is a student loan, private loan, or federal loan, there are ways that you can use to reduce the total loan cost. Some situations can require you to take a loan, whether for personal use, emergencies, mortgage, or school fees, among other needs. When such cases are over, you are left with a huge debt to settle, and the best way for a loan is to find ways to reduce the total cost so that you can reduce the burden that comes with repayment.

Retirement for Introverts
Image

There are a lot of introverts in the world, and they retire. I’m one of them, though I just figured out I am an introvert. There are a ton of implications if you are an introvert and retired. But it comes down to quality over quantity. Let’s explore.

Expectations in Retirement
Image

We expect a lot out of Retirement. What if the key to a successful retirement is to lower our expectations? After all, we will spend a third or more of our life in Retirement. After all that hard work, should we not expect some happiness or at least fun? If you want happiness in Retirement, let me tell you why the key to retirement happiness is to lower your expectations.

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.

Questions To Ask Before Hiring a Financial Planner or Coach
Image

You can make all the right money moves to set your business up for success, but sometimes, it may seem hard to do that without the right team behind you. Whether you’re planning a major pivot or just looking to grow, hiring a financial planner or coach can be a great way to support your business on its journey.

The Dollar Edges Higher
Image

After selling off amid speculation that China’s Covid policy was going to ease, we expected the greenback to recover and consolidate ahead of Thursday’s CPI.

How do you Take a Side Business to Full Business?
Image

Going from side-gig to full-time gig? Make sure you take care of some administration before you take the plunge.

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.

Market Musing 11-07-2022 - Please Vote
Image

The US Markets are waiting on FOMC Rate Hike of 75 basis points on Wednesday. Will Chair Powell pivot on rate hikes before the end of year?

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!

Resources for Publishers
Resources for New Investors
Boosted with BossCoin