Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
This Dividend Aristocrat Is Leading the 5G Revolution - 22nd July 19
What the World Doesn’t Need Now is Lower Interest Rates - 22nd July 19
My Biggest 'Fear' For Silver - 22nd July 19
Reasons to Buy Pre-Owned Luxury Car from a Certified Dealer - 22nd July 19
Stock Market Increasing Technical Weakness - 22nd July 19
What Could The Next Gold Rally Look Like? - 22nd July 19
Stock Markets Setting Up For A Volatility Explosion – Are You Ready? - 22nd July 19
Anatomy of an Impulse Move in Gold and Silver Precious Metals - 22nd July 19
What you Really need to Know about the Stock Market - 22nd July 19
Has Next UK Financial Crisis Just Started? Bank Accounts Being Frozen - 21st July 19
Silver to Continue Lagging Gold, Will Struggle to Overcome $17 - 21st July 19
What’s With all the Weird Weather?  - 21st July 19
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

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