Model Portfolio to Beat Inflation and it Doesn't Rely on Bonds | ETF Trends

There’s plenty of debate pitting market observers in the persistent or transitory camps, but the fact remains, inflation is here, and the last three months’ worth of Consumer Price Index (CPI) readings confirm as much.

Inflationary environments often compel advisors to direct clients to assets such as Treasury Inflation-Protected Securities (TIPS), gold, and real estate investment trusts (REITs). However, dividend stocks also have impressive histories of beating a rising CPI, potentially enhancing the allure of WisdomTree’s Global Dividend Model Portfolio.

What makes the WisdomTree model portfolio relevant today is that many of the nine exchange traded funds on its roster emphasize payout growth, not yield, and its dividend growth that has the goods when it comes to topping inflation.

Many clients “don’t realize that when inflation is rising quickly, dividends have a key advantage compared to bond coupons: growth potential. Over the past 150 years, dividends paid by U.S. companies have grown 3.7% per year compared with 2% per year for inflation,” according to BlackRock research.

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Obviously, dividend investing is a long-term endeavor. It’s not for investors looking to hit quick home runs, but the data does support its long-term credibility and inflation-fighting advantages.

“Over four decades, shares of companies that initiate and grow dividends have outperformed shares of companies that kept dividends the same or paid no dividends. Importantly, dividend-growth stocks have been less sensitive to rising rates compared with bonds, a key consideration with U.S. policy interest rates near zero,” adds BlackRock.

In other words, even if the Federal Reserve moves up its rate hike timeline in the name of damping inflation, the WisdomTree model portfolio could prove more resilient than non-dividend-paying strategies. As it is, the model portfolio is still worth considering today because not only is S&P 500 and global dividend growth storming back from the 2020 slump, but companies, broadly speaking, have the balance sheets to maintain and grow dividends.

As for beating inflation, the WisdomTree model portfolio checks that box with aplomb due to its focus on quality and durable dividend growth.

“Companies with resources to grow dividends consistently tend to be profitable, financially sound, and well-known. For example, Microsoft has grown its annual dividend for more than 10 consecutive years, with its latest payment representing 10% dividend growth year over year. Among international stocks, food and drink conglomerate Nestle has raised its dividend for 25 years in a row,” concludes BlackRock.

For more on how to implement model portfolios, visit our Model Portfolio Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.