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Dividend Stocks

Top 3 Dividend Stocks to Beat Inflation

The following is a transcript of an episode of “State of the Market” with Marc Lichtenfeld. The video titled “Top 3 Dividend Payers to Beat Inflation” aired on Friday, September 24th.

top dividend stocks to beat inflation

Hi everyone welcome to State of the Market, I’m Marc Lichtenfeld Chief Income Strategist with the Oxford Club.

My daughter is taking her first economics class. She asked me to help her study and we were talking about core-CPI, which tracks the cost of goods and services –  excluding food and energy.  Because no one really uses those things.

Other than the occasional outfit, food and gas are about the only thing my daughter actually spends money on. She thought this indicator was ridiculous. I agree.

The current inflation rate, including food and energy is 5.3%, higher than its been in decades. The Fed says the high inflation is “transitory”. That’s the word they used. They think it’s temporary.

And some of it may be. Pent up demand from the pandemic is certainly adding to frenzied buying which is pushing up prices. And so are supply chain disruptions that still haven’t recovered from the pandemic that are affecting nearly every industry. Some of that may let up now that extended unemployment benefits are running out so folks will no longer get paid to sit at home and find out who the baby’s daddy is on Maury.

The Top 3 Dividend Stocks to Beat Inflation – Watch the Video Now

But the idea that inflation is transitory when the Fed is dumping trillions of dollars into the economy and keeping rates at rock bottom levels is laughable.

Housing prices have gone berserk all over the country, from small towns in Idaho to white hot South Florida. Considering you can get a mortgage for 3% and a jumbo mortgage for 3.2%, it’s no surprise people are paying up for their dream house in their dream locations.

The Fed’s inflation target is 2%. As I mentioned, it’s currently over 5%. I expect it to go even higher.

How High Will Inflation Go?

Let’s assume the Fed miraculously gets it right. I know, I know, but stick with me. Let’s say inflation stays at 5% for another year and then dips down to the Fed target of 2% for the next nine years.

After 10 years, prices will still be 25% higher than they are today.  A $40,000 car will be $50,000. A $50 meal at a restaurant will be $62.50 and the estimated $300,000 that a 65 year old married couple today is expected to spend on healthcare in their lifetime will cost $375,000. Of course healthcare is not going up 2% per year. It is rising about 5.5% per year. If that continues in 2031the $300,000 in healthcare costs that a 65 year old married couple will incur today, rises to $512,431.

The government has two levers to help tame inflation, neither of which they appear intent on using. They can stop printing trillions of dollars in stimulus for an economy that no longer needs it and it can move interest rates higher.

Higher rates would also help savers who are currently getting buried earning a tenth of a percent in their bank accounts while prices for everything they need is surging.

So what can you do so that the government’s mismanagement of inflation doesn’t ruin your buying power?

Buy Perpetual Dividend Raisers

When I wrote my international best seller Get Rich with Dividends, it was for exactly this moment. In it, I recommended buying Perpetual Dividend Raisers, companies that raise their dividends every year.  That way you’re increasing your buying power as you get paid more dividend income each year.

For years, inflation was quite low. So those ever increasing dividends were great and really boosted investors buying power. But now that inflation is surging, it’s more important to have a growing income stream so that your buying power doesn’t decline.

No one wants to be able to afford less as they get older. So you need an investing strategy that will not simply hand you a pile of money to draw down from . You want your pile of money to generate more money every year so you don’t have to withdraw from your nest egg until it dwindles down to dangerous levels.

Investing in companies that raise their dividend every year is one of the very few weapons you have in your investing arsenal to make sure the government’s mishandling of the economy doesn’t affect your lifestyle.

More on leveraging dividend stocks to beat inflation…

I’m talking about companies like tiny Missouri regional bank Hawthorne Bancshares, ticker symbol HWBK that has raised its dividend an average of more than 14% per year over the past 10 years, including a 14% hike in the past year. Or the much larger Magna International, ticker MGA, which makes technology for the auto industry and has boosted the dividend an average of 15% per year over the past decade

If you’d bought 100 shares of Magna International 10 years ago, you’d have received $100 per year in dividend income. Today, you’d receive $354 and your yield on your original investment would be more than 21% per year. Not surprisingly, since the company’s earnings, cash flow and dividend all grew, so did the stock price. It’s up nearly 356% over the past 10 years.

Performance like that will help you maintain and increase your buying power in this current or future inflationary environments.

More on Buying Dividend Stocks to Beat Inflation

I discussed inflation, taxes and of course the government’s role in the economy with former White House economic advisor Larry Kudlow recently. He had some pretty provocative things to say. Click the link below to hear our conversation.

Thanks for watching State of the Market. I’m Marc Lichtenfeld. See you next time.

Click Here to Hear Our Conversation


About

A master of the steady, reliable science of income investing, Marc’s commentary has appeared in The Wall Street Journal, Barron’s and U.S. News & World Report. He has also appeared on CNBC, Fox Business and Yahoo Finance. His book Get Rich With Dividends: A Proven System for Double-Digit Returns achieved best-seller status shortly after its release in 2012. Marc captures the hearts and minds of readers approaching their golden years in his daily e-letter, Wealthy Retirement.

 

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