Inflation is at its highest point in over 30 years, gobbling up your cash much like Pac-Man chomping down on ghosts after swallowing a power pill. Fuel prices are up 59%. New cars will cost you an extra 10%. Everything from eggs to coffee is surging in cost, and 2022 isn’t looking like it will usher in a whole lot of change. All of this is enough to turn a robust, healthy portfolio into a ghost of itself.
Twitter and Square CEO Jack Dorsey tweeted last month, “Hyperinflation is going to change everything. It’s happening.” His words seem quite prescient since cash has been bleeding value, with CPI up 6.2%, the largest increase since 1990. If the Fed doesn’t act, inflation could hit as high as 7% by the end of the year.
This is where dividend-paying companies can come to the rescue. You must have high yields backed with sustainable cash flows, or your portfolio risks drowning in the tumultuous sea of inflation. Companies that pay out juicy dividends, such as MLPs and REITs, can help you weather the storm. There is also value in looking at dividend growth companies with high marks on the quality factor, as they can come out ahead in the long run, since they tend to have healthy balance sheets and the ability to pass on costs to consumers.
Some Options to Keep Your Portfolio Afloat in Troubled Times
Pac-Man’s power-ups do eventually time out, and the good news is that although inflation may be around for a while, it won’t be around forever. Investors have options in both high-yielding investment products like REITs and MLPs, and in longer-term plays.
The Alerian MLP ETF (AMLP) is a great way to get exposure to the midstream. The midstream is an interesting corner of the energy infrastructure sector that specializes in companies that hold, transport, and process raw energy materials. Because they use fee-based structures with inflation clauses in their contracts, midstream companies tend to generate dividends at faster rates than inflation.
REITs are another potentially incredible option for generating amazing yields. Real estate tends to be inflation-proof because property values rise with inflation, which in turn raises rents. REITs can have a number of different varieties, but regardless of the flavor of a given REIT, they all tend to put out terrific dividends that outpace inflation. An ETF like the ALPS Active REIT ETF (REIT) is a great option to get exposure to this dividend superstar.
Finally, a longer-term approach like the one offered in the SmartETFs Dividend Builder ETF (DIVS) could be a wise strategy. DIVS focuses on smaller-cap companies that have clean balance sheets and consistent dividend payouts that are expected to grow over time. These companies are well positioned to weather inflation turbulence and seize advantages in the market that might cause other companies to sink.
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