Inflation is all over the news. Whether it’s business, consumer or political news, we simply cannot escape it, and folks will continue to debate it.
The Labor Department recently reported that its Producer Price Index (PPI) rose 0.6% in October to an 8.6% annual pace. Yikes! Wholesale gasoline led the surge, rising 6.7% last month. Excluding food and energy, core PPI increased 0.4% in October to a 6.2% annual pace. The Labor Department also revealed that its Consumer Price Index (CPI) soared 0.9% in October to a 6.2% annual pace — or the highest rate in more than 30 years. Core CPI, which excludes food and energy, also rose 0.6% last month to a 4.6% annual rate.
Interestingly, major central banks are still in no hurry to raise key interest rates to squelch inflation. In fact, former Federal Reserve Chair and Treasury Secretary Janet Yellen recently stated, “I’d expect price increases to level off, and we’ll go back to inflation that’s closer to the 2% that we consider normal.”
In defense of Yellen and other central bankers, inflation on a trailing 12-month basis had been decelerating since June 2021, opening the door for the Fed to proclaim next year that inflation was indeed “transitory.” However, with the resurgence of inflation in October, that argument has been squashed. I would not be surprised if central bankers kick the “transitory” inflation argument down the road and now claim that inflation will be transitory until 2023 or later.
The bottom line: We remain in an inflationary environment.
As a result, more and more people are turning to dividend-paying stocks as good hedges against inflation. This helps investors for a couple of very important reasons.
Firstly, high-yielding dividend stocks actually can outpace inflation in the long term. And while inflation can cause volatility across most of the market, dividends tend to exhibit less volatility than stock prices and earnings.
Dividends are also experiencing their time in the spotlight, thanks to the under-performance of 2020. Last year, many companies were forced to slash dividends in order to meet the bottom line.
However, over the last few quarters, payments to shareholders have been on the rise. For example, the dollar value of dividends paid on the S&P 500 is expected to hit record levels this quarter and for the full year.
For 2021, yearly dividend payouts are up 8.1% from last year’s total of $483 billion to $522 billion, with nearly 300 companies in the S&P 500 raising their dividend this year.
All told, dividends in the second quarter were up 4% from a year ago and up 6.5% from the pandemic lows of the third quarter of 2020.
Now, before you jump into any dividend-paying stock, I should warn you that not all dividend stocks are created equal. But before I explain why, let’s take a step back and talk about what exactly a dividend is.
A dividend is a distribution from a company’s earnings paid directly to a class of its shareholders. It is up to the company as to when (or even if) it is paid. The dividends tend to be paid out on a quarterly basis, but some companies will pay a semi-annual or annual dividend. Company management will always announce when it will be paid — including your deadline to buy the stock in order to receive this payout — and what the dividend will be per share.
Now, the dividend yield varies depending on the company’s actual dividend and where the stock price is at the time. In some cases, you may be looking at a double-digit dividend yield. But as attractive as a double-digit dividend yield may sound, I recommend you pump the brakes before investing. Chasing dividend yields alone can be downright dangerous.
Stocks are not like Treasury bonds or a savings account: There’s no guarantee that you will get your money back. There’s also no guarantee that company will continue paying a dividend. If you choose poorly, you could lose your capital as the stock price falls. Or, that nice juicy dividend could be slashed.
In most cases, dividend yields are tantalizingly high for a reason (the stocks are cheap and rightly so) — and are simply not supported by the fundamental earnings power of the business.
This is why my Dividend Grader is so important. Just like my Portfolio Grader, it uses my proprietary formula to put each stock through a rigorous test, crunching reams of data against a set of criteria I’ve created.
This, in turn, tells us whether the stock is worth investing in or if we should be staying far, far away. Here are a few examples:
As you can see, each company has a huge double-digit dividend yield, but it also receives a “D” or an “F” rating from Dividend Grader, as well as a “Sell or “Strong Sell” recommendation. This is because their dividend trend, dividend reliability, forward dividend growth and earnings are very, very poor.
Now, I don’t want to scare you away from dividends — far from it. I just want you to be aware of the potential risks. Investing in dividend stocks can also be very lucrative. If you get it right, you can make a fortune. Fundamentally strong dividend stocks pack a one-two punch of share price appreciation and a steady stream of income… with payouts that can be twice or five times what you get from a Treasury bond or a bank.
My Growth Investor service features the crème de la crème of dividend growth stocks. A stock only makes it to my Elite Dividend Payers Buy List if it receives a “AA” rating, which means it must have an “A” rating in both Dividend Grader and Portfolio Grader.
In fact, I recently recommended a brand-new coveted AAA-rated stock in my latest Growth Investor Monthly Issue. The AAA-rating indicates an A-rating in Dividend Grader, an A-rating in Portfolio Grader and an A Quantitative grade. In other words, it offers the perfect blend of income, growth and persistent institutional buying pressure.
It has a solid dividend yield, great long-term potential and is still trading below my recommended buy limit. You won’t want to miss out on this exciting opportunity, so make sure to sign up here so I can reveal its name to you.
Once you sign up, you’ll have access to my full Elite Dividend Payers Buy List — chock-full of fundamentally superior dividend-paying companies — and my High-Growth Stocks Buy List, which continues to steadily appreciate.
If you add it all up, my Growth Investor stocks are characterized by 45.7% annual sales growth and 55.1% annual earnings growth — and they’re showing no signs of earnings or sales deceleration. So, my Buy Lists have attracted plenty of attention recently, with my High-Growth Investments Buy List up 3.3% and my Elite Dividend Payers Buy List up 2.7% so far in November.
I should also add that my Growth Investor stocks are trading at only 23.2 times median forecasted 2022 earnings — i.e., my subscribers are not paying a premium price-to-earnings (PE) ratio since our strong quarterly results continue to compress PE ratios.
The reality is millions of Americans are pouring money back into the stock market in search of higher yields and protection from inflation — and they’re seeking out stocks with the strongest fundamentals.
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
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