The financial media has been screaming about “Five Dividend Stocks to Buy to Protect Against Inflation” but do dividend stocks actually provide a better return. Using data from Dimensional Fund Advisors we look back to 1928 to better answer that question. You can download the study here:

Remember, I’m a financial advisor, but I’m not your financial advisor. Nothing in this video is meant for financial advice.

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00:00 Introduction
01:10 Disclaimer
01:22 Background on Dividends
02:36 Do dividend stocks provide protection against inflation?
04:46 Do dividend stocks provide protection against rising interest rates??
05:58 The Solution…(read more)

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As inflation continues to rise, many investors are left wondering how to protect their assets. One popular option is to invest in dividend-paying stocks. But do these stocks actually protect against inflation?

In short, yes. While dividend-paying stocks are not immune to the effects of inflation, they can still provide a level of protection.

First, let’s define what we mean by inflation. Inflation is the rate at which the general level of prices for goods and services is rising, and, subsequently, the purchasing power of currency is decreasing.

When inflation rises, the value of cash decreases over time. This is because the same amount of money can purchase fewer goods and services as time passes. This can be problematic for investors who are holding a lot of cash or cash-equivalent assets.

However, dividend-paying stocks can provide a level of protection against this devaluation of currency. This is because companies that pay dividends typically have a track record of consistent earnings, which mean they are likely to continue generating profits even in the face of inflation.

Additionally, companies with a history of paying dividends may also have a history of increasing their dividend payouts over time. This means that, over time, investors can actually receive a higher income stream from their investment, which can help offset the effects of inflation.

Furthermore, companies that pay dividends are typically more established and financially stable than non-dividend paying companies. This means that they are better positioned to weather economic storms, which can provide a level of stability to investors.

However, it is important to note that not all dividends are created equal. While some companies may pay out a high dividend yield, they may not have a solid track record of consistent earnings or financial stability. It is important for investors to conduct their own research and due diligence before investing in any dividend-paying stock.

In conclusion, while dividend-paying stocks do not guarantee protection against inflation, they can provide a level of stability to investors in a volatile economy. Companies with a history of paying dividends and increasing their payouts over time may be better positioned to weather economic storms and provide a consistent income stream to investors.