Dividend Growth Investor: Are Dividend Increases Beating Inflation in 2022?
With asset prices falling, investors are turning away from growth stories and looking for companies with more consistency. For the long-term, dividend stocks can provide an extra source of income, as well as much-needed stability.
But inflation is currently running at multi-decade highs. With inflation rising so quickly, even companies that have a history of raising their dividends may not be able to match the loss of purchasing power with a higher payout.
Typically, dividends grow at a stable rate over time as the economy grows. Overall dividend payments may drop during a recession. For instance, many companies cut their dividends during the pandemic.
But over time, the rate tends to rise. And, more importantly, data going back to the 1960s shows that dividends tend to increase faster than inflation over time.
Given the rising inflation rates of the 1960s and 1970s, combined with decades of dropping inflation, that’s a good time period to use. It shows that even in periods where stock prices may not be rising, companies can continue to pay out increasing amounts of cash.
Overall, that trend is holding up year to date. 193 companies have announced dividend increases so far this year. 117, or about 60 percent, of those companies have raised their rates higher than 8 percent.
Inflation is running a bit hotter than average right now. But it should cool down in the back half of the year.