Fighting Inflation With Dividend-Paying Stocks - Adviser Investments

Fighting Inflation With Dividend-Paying Stocks

November 3, 2021

With bond yields still historically low, are dividend-paying stocks the answer for income seekers? Can they be used as a substitute for bonds, and what role should they play in an overall portfolio? Here’s what Vice President and Portfolio Manager Steve Johnson said in our recent webinar,  Booster Shots, Market Shocks and the End of Fed Intervention:*

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Steve Johnson:

I love income and I love dividend-paying stocks. One reason: Dividend growth can be a tool to fight against inflation. Many of the companies we invest in have the ability to raise those dividends year-over-year, so dividend-paying stocks are a good way to get income as well as capital appreciation.

But should they be used as a substitute for bonds? As much as it pains me to say it, I can’t go there, because you definitely need bonds in your portfolio. Everyone right now is scratching their head saying, “Gosh, what do I do in this environment where the 10-year Treasury is paying 1.6%?” Unfortunately, the effect is that everyone is moving out on the risk spectrum.

That investor who might have been conservative or comfortable with a 50/50 (50% stocks, 50% bonds) portfolio? Now they’re adding things like crypto and dividend-paying stocks. The risk side is increasing in their portfolio.

I still believe that dividends are crucial as an anchor for someone’s portfolio. But I also understand there’s risk there (as with any stock), so I don’t believe dividend-growth stocks can be a full substitute for bonds. Income is really the focus right now, and there are ways to increase it within the bond side: High-yield bonds, convertible bonds and real estate are some examples. Understand that there are options, but we always want to be cognizant of the risks out there.

Click here for a replay of Booster Shots, Market Shocks and the End of Fed Intervention. Please contact us at (800) 492-6868 to learn more about comprehensive wealth management solutions.


*Webinar recorded after the market closed on Wednesday, October 20, 2021.

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