Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Beat Inflation and a Down Market With Dividend Stocks

Companies / Dividends Sep 28, 2011 - 08:59 AM GMT

By: Investment_U


Best Financial Markets Analysis ArticleMarc Lichtenfeld writes: The Federal Reserve Bank of San Francisco issued a report predicting stock prices could fall 13 percent in the next decade.

That would be some accomplishment. I’m not sure if the researchers who issued the report are aware that they’re predicting the fifth-worst 10-year performance by the market in the last 74 years. The four worst: the 10-year periods ending in the years 1937, 1938, 1939 and 1940 – all time frames that were impacted by the Great Depression.

Even the years of the Great Recession, 2008 and 2009, posted single-digit losses for 10-year returns.

Yes, things are difficult in the global economy. But there have only been seven times out of the past 74 years that the 10-year return of the market was negative. So the authors of the report are predicting something that historically only occurs nine percent of the time.

That’s a bold prediction.

A Conservative Investment to Keep Ahead of Inflation

I don’t think they’re right. But let’s assume their forecast is correct. You’re looking for a conservative place to grow your money and keep ahead of inflation. What should you do now?

The answer: Buy stocks.

Let’s assume you have $10,000 to invest. What are your other options? You can lock it away in a 10-year Treasury and collect 1.84-percent interest or in a 30-year bond at 2.93 percent.

That’s not very enticing.

However, after 10 years, you have little chance of maintaining the purchasing power of your original $10,000. Over the past 12 months, the consumer price index has increased 3.8 percent.

•If over the next 10 years, inflation averages just 2.5 percent, you’ll need $12,800 to maintain the buying power of your original $10,000.
•If inflation ticks up to an average of three percent, you’ll need $13,439.
That’s a far cry from the $11,840 you’d have from a 10-year bond ($184 per year for 10 years plus your $10,000 principal).

Some corporate bonds will get you there. If you go down to AA-rated bonds…

•You can pick up a Wal-Mart (NYSE: WMT) bond maturing in 2021 for a yield to maturity (YTM) of 3.87 percent. That would give you $13,870 after 10 years.
•Or you can do even better with a Wells Fargo (NYSE: WFC) bond with the same maturity and a YTM of 4.31 percent. This hands you $14,310 after 10 years.

However, we know that the government’s CPI statistics aren’t very accurate. Most of us would be thrilled if our healthcare, tuition and utilities’ costs only rose three percent per year. So we need a considerably higher return to offset inflation.

The Inflation-Beating Solution: Dividend Stocks

If you own dividend-paying stocks, particularly those that raise their dividends every year, you should be able to beat the inflation rate and protect your purchasing power.

And even if the Fed researchers are right and your stocks lose 13 percent over 10 years, you’ll still come out ahead.

Here’s what I mean.

Let’s use Perpetual Income Portfolio member Southern Company (NYSE: SO) as an example. The stock currently pays a dividend of $1.89 per share and yields 4.5 percent. It has grown its dividend by an average of three percent per year over the past 10 years and has raised the dividend each year over the past decade.

•If Southern Company continues to raise its dividend by an average of three percent per year, in 10 years, the stock will pay a dividend of $2.46 or a yield of 5.8 percent.
•However, if you reinvest the dividend over the next 10 years and the stock falls 13 percent like the researchers expect for the broad market, after 10 years, even with the decline in share price, your investment will be worth $15,190.
•If shares of Southern Company don’t budge in 10 years, your investment will be worth $16,626. And if it climbs an average of just six percent per year (below the 10-year market average of 8.7 percent), your original $10,000 turns into $24,997.

This is the power of compounding dividends. Your dividends pay dividends. And as the dividend grows, it pays even more dividends, which pay more dividends. The key is to be able to give it time. It starts off slowly but then gains momentum as the years go by.

There’s a lot of bearishness in the market these days. Some pundits are telling you that this time it’s different. And it may very well be. But the numbers don’t lie. The market could generate a negative return over the next 10 years, something that historically happens less than 10 percent of the time. But if you’re invested in the right stocks, you can still beat inflation and outperform other asset classes.

Dividend stocks are the conservative way to make money in this unpredictable market.

Good investing,

Source :

Marc Lichtenfeld

Editor’s Note: But what if you don’t have the time to put together a stock watchlist for yourself, or don’t even know where to look? That’s where The Oxford Club comes in. We’ll do the work for you, showing you what stocks to buy and when to buy them. Not only that, the Club offers something for every investor – from stock market newcomers to seasoned veterans – and provides ample opportunity to diversify through several model portfolios. Take a look at the full list of benefits that you’ll receive when you become a member of The Oxford Club.

Copyright © 1999 - 2011 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email:

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules