With inflation commanding an increasingly prominent part of everyday investing conversations, assets with reputations for beating rising consumer prices (or, at the very least, for proving durable in that scenario) are receiving more attention.
Historically, those assets include hard assets, such as gold, real estate, and Treasury inflation protection securities (TIPS). However, investors should not overlook the potency of dividend growth strategies as avenues for beating inflation.
In fact, while dividend growth is always fashionable, it’s a concept that investors should consider today for multiple reasons, including the fact that S&P 500 payouts are growing in significant fashion and inflation data could continue running higher over the near-term.
“There is another critical matter at hand: October CPI, which will be published on November 10, may easily exceed the monthly growth rate we witnessed last October,” says Jeff Weniger, WisdomTree’s head of equity strategy. “In that month, CPI was flat. Come to think of it, last November was also tame. That is a much different situation from the big inflation months of summer 2020.”
Investors don’t have to stretch to attain dividend growth strategies capable of besting inflation. Consider the WisdomTree US Quality Dividend Growth Fund (DGRW). DGRW tracks the WisdomTree U.S. Quality Dividend Growth Index and yields 1.80%. DGRW’s emphasis on return on assets (ROA) and return on equity (ROE) is tailor-made for long-term investors seeking durable payout growth as well those who want an alternative to gold and TIPS when it comes to inflation-fighting assets.
“The natural concern for 2022 is whether Corporate America can maintain its profit margins in the face of rising labor costs. After all, sometimes it takes the landlord to drop the rent bomb on you before you finally get the courage to ask the boss for a raise,” notes Weniger. “A profit margin pinch is coming. When you break apart the often-cited quality smart beta factor, return on equity (ROE), you see that profit margins are a key driver of the metric. Slash margins and you have a problem.”
Investors can also turn to small-cap equities to beat inflation… if they’re selective. Enter the WisdomTree U.S. SmallCap Dividend Growth Fund (NasdaqGM: DGRS). Also relying on ROA and ROA to guide its quality path, DGRS is the small-cap counterpart to the aforementioned DGRW. DGRS yields 1.83%, or 67 basis points more than the S&P SmallCap 600 Index.
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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.
