Dividends can provide exceptional inflation protection.
This might feel counterintuitive, as generating cash doesn’t seem like a winning strategy when cash is devalued. But there are a few key points to remember:
- Companies that pay out generous dividends tend to be companies that sell products that are going for market value. If the price of those products surges, so will the dividends they dole out to investors. Blue chip companies historically pay out interest rates that are higher than inflation.
- Commodities in general run in front of inflation and tend to indicate rising prices are coming before inflationary conditions actually set in. This means funds will come in while they are maintaining strength and before inflation begins dragging down the value of cash.
- Dividend payout ratios tend to be stable during key inflationary periods. Dividends also exhibit less volatility than stock prices and earnings.
- High dividend yielding stocks outpace inflation over the long-term. Even in cases where inflation might seem to bury them for a few months, or even years, the high-yield stock will often win out in the long run.
Dividend-Generating ETFs
Because inflation can hit different sectors in different ways, it is important to have a wide diet of dividend-producing products in a portfolio. Some fantastic options include the SmartETFs Dividend Builder ETF (DIVS), which offers exposure to global all-cap stocks with robust dividend yields. A recent ETF of the week, DIVS is great option for both long-term growth and strong fundamentals.
The SmartETFs Smart Transportation and Technology ETF (MOTO) focuses on transportation technologies, including electric vehicles, self-driving cars, and companies that are building the infrastructure of the world to come. Top holdings include Tesla Inc and Samsung – companies that are likely reap enormous benefits from Biden’s upcoming infrastructure bill.
Finally, the Global X SuperDividend ETF (SDIV) offers exposure to a wide array of dividend-paying equities. Its scope is global, a unique strategy that gives this fund a great deal of tactical diversity. The ETF can be used as a core holding or for a short-term tilt toward specific equity groups. The fund boasts a 7.41% dividend yield.
For more news, information, and strategy, visit the Dividend Channel.