You May Already Own This Powerful Investment

Dave Gilbert here, Editor of Smart Money.

To say inflation is really hot right now is an understatement at best.

The abhorred “i” word is plastered all over news sites, TV screens, alerts we get on our smartphones. We’re paying more for gas, groceries, and just about everything else.

An image of a calculator with the word inflation on the screen, sitting on top of a graph with a pencil next to it
Source: Sauko Andrei / Shutterstock

Just this week, the Consumer Price Index (CPI) hit its highest level in 40 years, and then one day later the Producer Price Index rose the most on record – 11.2% over last year.

But here’s the good news…

You may already be hedging against inflation, and you might not even know it.

We talked on Tuesday about possible inflation hedges for your portfolio – investments that should do well when prices are rising so quickly.

There’s another one to consider, and it’s already a staple of many portfolios.

Dividend-paying stocks bring the ability to at least partially offset inflation and an impressive track record of boosting returns.

And if you invest in dividend stocks in industries riding strong tailwinds, you can set yourself up for solid price appreciation to go along with inflation-busting income…

The Surprising Power of Dividends

According to S&P Global, dividends account for 32% of the S&P 500’s total returns since 1926.

Fidelity says that in the 90 years from 1930 to 2020, dividends constituted nearly 40% of total returns.

Let that sink in. Somewhere around one-third of the market’s total returns going back nearly a century come from dividends.

Dividends are measured in yield, a term we’ve heard a lot lately in relation to Treasury bonds. The yield is simply the payout as a percentage of the stock’s price.

For example, if you invest $100 in a company that pays a dividend of $1.00 per share per quarter – totaling $4 per year – you earn a 4% yield.

Dividend-paying stocks are naturally popular times of low interest rates, which we’ve been in for more than a decade. Yields were often higher than the interest you could earn on your cash, which was practically nothing.

Now, with rates rising and inflation increasing, dividend-paying stocks are still on investors’ radars. The extra cash paid to shareholders helps offset the decreased value of cash caused by inflation.

What’s more, quality companies with strong balance sheets tend to raise their dividends, resulting in cash to shareholders and increasing the hedge’s power even more.

Earning Yields in the Energy Boom

Commodity stocks historically outperform during times of inflation, so investors often turn to these stocks in times of rising prices.

As regular Smart Money readers know, Eric Fry sees big opportunities in multiple commodities, like battery metals nickel and copper, which are skyrocketing in price. But I would say the one he is most bullish on is oil.

At the beginning of 2022, before Russia invaded Ukraine and the world turned its back on Russian oil, Eric wrote:

In the here and now, demand for oil during the last several months has been rebounding sharply. As it continues to rebound, it could reach about 104 million barrels per day (MBPD), which would be about two MBPD higher than the world’s oil producers have ever supplied to the market…

Furthermore, oil and gas companies have been slashing the exploration budgets for many years. Global investments in oil and gas exploration and production have plummeted by about 65% since 2014.

Net-net: Bountiful new supplies of crude oil seem highly unlikely.

A tightening oil market, coupled with a rising inflationary trend, provides ample reason to expect oil stocks to deliver market-beating results in 2022.

And… you can often find nice dividends, too.

How nice? Here are the three biggest U.S. oil companies and their current yields:

  • Exxon Mobil Corp. (XOM): 4.1%
  • Chevron Corp. (CVX): 3.3%
  • Marathon Petroleum Corp. (MPC): 2.7%

Those are solid yields, especially considering the big price appreciation from all three.

You can find higher yields, too, although you need to be careful not to chase yields, and you want to avoid as much as possible stocks that could cut their dividends. Not only do you earn less cash, but the share price usually takes a hit as well.

Eric actually just recommended a basket of three oil investments with an average yield of 8%. He just shared his full analysis of each in the new Fry’s Investment Report monthly issue, which was just released today.

As he wrote when he recommended them:

Despite these recent big moves, the new bull market in energy stocks is probably still in its infancy. If $100+ oil becomes the new normal, rather than a temporary fluke, oil companies will begin minting money.

At the same time, investors will become increasingly convinced that the industry’s robust profit growth can continue for a good, long while.

Eric believes so strongly in this opportunity, that he is planning a big event in late April that will focus almost entirely on investing in the booming oil market. He wants to make sure as many people as possible take full advantage of the unique set of circumstances.

One final note: The stock market is closed tomorrow, Apr. 15, for Good Friday and Passover. Our InvestorPlace offices are closed as well. Have a great weekend, and we’ll talk again next week.


Dave Gilbert
Editor, Smart Money

Article printed from InvestorPlace Media,

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