Dividends Float
How to Escape the Rising Tide of Inflation
At first the waves seem a bit angrier as they lash against the shore. Soon the ground you walk on squishes and squelches. The water table is saturated. If you wait around, it won’t just wash up to your ankles. It may wash your whole home away. And you with it.
This kind of flood imagery is top of mind for many investors as the US continues to experience a 40-year high inflation rate.
How about you? Does your head swirl with the foam and brine of financial erosion?
If the prospect of watching your hard-earned savings and investments float out to sea concerns or frightens you, then you’ll want to know what your options are.
The first option which many investors are actively choosing is to reallocate their portfolios out of more volatile growth exchange traded funds (ETFs) and into their dividend paying counterparts. According to research done by Refinitiv Lipper, investors have moved a record monthly flow of $7.5 billion into these dividend ETFs as of January 2022.
This seems like a savvy move. After all, dividend-paying stocks are usually in a better position than the market in general during inflationary times. And when inflation is devaluing currency, a dividend payout sooner beats no payout later.
However, there is a much more profitable, and arguably safer, option than dividend ETFs. All it takes is a bit more wisdom and pluck.
The wisdom comes from knowing that your dividend payouts would be substantially higher if you invested in the dividend-paying stocks individually.
With ETFs, your investment capital is so widely dispersed that you end up just as committed to companies with miniscule dividends as to those with hefty ones.
With the waters rising, that would be like spreading your belongings out among a large number of properties, some comfortably on higher ground but most just barely beyond the new sea level. Sure, one or two of your suitcases are almost guaranteed to survive.
But wouldn’t you rather have everything you started with and more? The brilliant marketing of ETF companies has probably convinced you that any other investment strategy than theirs is too risky. How convenient for these mega corporations.
The truth is, it’s very possible to figure out which properties are safest from the floodwaters. And it’s your best strategy for continued investment stability and growth during this volatile time.
So summon the courage and choose your own dividend stocks.
“But where do I look?” you ask.
Easy: stocks with sustainable 5 to 7 percent annual dividend growth have the high ground.
That high ground is solid, and time tested. It is made up of growing and financially healthy underlying businesses. This is the essential element for strong and reliable dividend growth. And best of all are companies tapped into powerful long-term trends that transcend normal economic cycles.
The best place to hunt for such companies is my Utility Report Card coverage universe—and particularly the stocks I recommend in the Conrad’s Utility Investor Portfolios.
Normally six weeks into a new quarter, the vast majority of companies I track would have released earnings and updated guidance. End-year filing requirements will extend the Q4 reporting period well into next month. But from what I’ve seen so far, the best in class are well on track to continue raising dividends faster than the current rate of inflation—and some much faster like Conservative Focus stock NextEra Energy Partners (NYSE: NEP) at 15 percent plus.
I’ll be offering more specific commentary and answering questions during the Conrad’s Utility Investor webchat on Thursday, February 24 starting at 2 pm Eastern Time.
If you would like to join us on higher ground, consider subscribing to Conrad’s Utility Investor here.
Thanks for reading and stay dry!
To your wealth,
Roger S. Conrad