Consumer Price Inflation rose by 6.8% last month, marking the highest inflation climb since June 1982. Gas prices have jumped 58.1% over the year ending in November, the largest change since April of 1980.
“The data add to the case for Fed officials to turn more hawkish at the FOMC meeting next week,” said macro strategists at TD Securities. The markets managed a good day despite the inflation, as many analysts anticipated this was coming. But turbulence could be on the horizon.
In an interview with the New York Times, Kath Bostjancic, chief U.S. financial economist at Oxford Economics, said, “It all but confirms that we’re going to get that acceleration of quantitative easing tapering and the pace will be doubled. It was baked into the markets already and they were expecting this.”
Dividends Can Lead a Portfolio Through Inflation
Inflation can kill an otherwise healthy portfolio, but dividends are a terrific way to defend your wealth, as income tends to outpace inflation as costs are pushed down to consumers, meaning that company earnings rise as inflation kicks in.
One option for juicy dividends is the midstream space. An ETF like the Alerian MLP ETF (AMLP) offers exposure to midstream firms that hold, transport, and process raw energy materials. Midstream firms generate income using fee-based structures that have inflation clauses baked into their contracts. The fees are set in advance and kick in automatically as inflation increases. Because energy is still consumed, Midstream companies have no problem getting clients income that can meet the inflation moment.
Quality companies are also a good bet during times of economic uncertainty, as healthy firms with minimal debt issues and plenty of liquidity can thrive and take advantage of the chaos and position themselves for success. The SmartETFs Dividend Builder ETF (DIVS) could be a wise strategy, as it is a dividend growth ETF that focuses on small-cap quality companies that are well positioned to come alive in this challenging moment.
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