FINSUM + Magnifi: Equity Income is the Inflation Hedge

October 12, 2021

Whether the US’ current bout of inflation is caused by transitory supply-side factors, or trillions of dollars poured into the economy by policymakers, is irrelevant because investors are now tasked with finding a way through the stock market jitters. As inflation rises, it eats away at yields and the value of fixed coupons falls. 

  • To avoid the pitfalls of rising prices, look to dividend stocks whose yields are pushed higher by inflation. Of course not all dividend stocks are created equal and some will outperform in an inflationary environment. 
  • The most interesting income stocks are in the financial sector because they benefit from rising interest rates, as their interest rate margins expand in such environments. 
  • Energy is next, at least currently. Higher demand boosts prices of oil and gas, which benefits energy sector investors as it is one of the highest dividend payers. These sectors are the most likely to boost their dividends in the rising price environment.

FINSUM + Magnifi: Dividend stocks have no doubt outperformed just about every segment of the bond market, and expanding your dividend holdings may be a good idea as inflation comes in at 20-year highs. 

 

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