GenExDividendInvestor: Dividends vs Inflation: Who Wins?

Inflation has seen a dramatic drop over the past year. However, it’s still higher than average. And getting it down further may require interest rates to keep ticking up. Or simply to stay higher for a prolonged period.

Higher inflation tends to result in lower returns in assets such as stocks. So, it’s important for investors to look at the impact. When it comes to dividend stocks, investors stand their best chance of beating out inflation over time.

However, it’s no sure thing. There are several factors to consider.

Dividends can provide half of an investor’s lifetime returns or more. For that to happen, the dividends have to be reinvested. And there can be major variations in the short-term.

And the focus should be on dividend growth, not the initial payout itself. Except for the high inflation of the 1970s, dividends grew more than inflation for every post-World War II decade.

That’s a sign that dividend investing can provide real returns above inflation for patient investors under most scenarios.

Investors should consider dividend stocks today. It’s clear that they can grow their payouts faster than today’s inflation. And that it’s a sign of a healthy and financially stable company.

Investing in such companies over the long haul can provide growing income. And do so with less volatility than just investing in growth stocks.

For the full data on how dividends perform against inflation, click here.