Best dividend stocks to hedge against inflation

my name is jake welcome to the channel in today's video i'm going to share with you why i am not worried about inflation i'm going to talk about some of the things that i'm thinking about when i'm looking at my portfolio and when i'm looking down in the into the future when i'm investing into the stock market i'm going to share with you why i'm not concerned i'm not worried about my portfolio and i know there's a lot of investors out there are really scared and concerned about their portfolio if they should invest in the stock market or not so in this video i'm going to share with you some of the things that i'm thinking about and i know a lot of you that are following the channel we we have kind of that similar approach to how we view investing a lot of you following the channel you know that i'm the reason why i invest is so that i can reach financial independence that's the entire reason i don't invest for any other reason other than my portfolio is going to buy my freedom i currently work a nine-to-five job my wife works at 95 job our entire purpose around investing is so that we are no longer required to rely on our day job to sustain our our lifestyle our you know our standard of living so when i look at inflation and when i look at how other people are viewing it and talking about it in the media it kind of makes me scratch my head and think for a second well actually inflation really isn't a bad thing when you understand it and so obviously we haven't seen real real inflation in a long time and so in this video i'm going to talk about four things the first part of the video i want to talk about understanding your history when it comes to inflation so i'm going to speak very high level around what we've seen in the past in terms of inflation and why some companies were able to prosper where others weren't in in higher inflationary times second i want to talk about inflation in terms of looking into the future and what it could potentially look like going into the next 10 years if we were to have a decade of higher inflation and then the third thing is i want to talk about a stock an individual company that i own in my portfolio that i think is kind of a hidden gem that may be really interesting in this new inflationary environment that we may find ourselves in for the foreseeable future and the last i'm going to share 10 dividend growth stocks to hedge against inflation all 10 of these stocks are in my portfolio and i'm going to share something very unique to maybe not a lot of you maybe thought about and i'm going to share why these 10 dividend growth stocks are poised to do very well if we do see this higher inflationary environment that everybody keeps talking about it feels like every news outlet every media channel is talking about inflation it's kind of that feeling that there's a lot of fear-mongering going on a lot of people are saying hey you know the market is going to crash you know those those click-baity you know thumbnails titles to articles whatever it just feels like there's a lot of noise right now when it comes to the topic of inflation and to be honest it doesn't faze me at all and when i look at my portfolio and i look at my own situation i just feel like it's just a lot of noise and for me when i when i think about how everybody keeps talking about inflation it kind of makes me feel a little like this well ferguson's not too happy with it i can tell you that much he's beating him like a rented mule and the reps just tuning him out boy where do you train to take a beating like that he said when's that porch gonna get painted and that litter box it's been three weeks three weeks and you think i could have married don hoffman and it wouldn't once in a while oh my gosh i love it i love it all right cool so i think with inflation it is to a degree self-fulfilling if you look at the search term here on google when you look at inflation just here in the united states we're seeing the highest interest or search volume around inflation in the last 17 years so to put that into perspective it really can be a self-fulfilling thing if we talk about it enough it will become a reality and that's i think kind of what we're seeing when we look at the current u.s inflation rate and there's many different ways that you can look at inflation you can look typically it's through the cpi the consumer price index and so i think this has been really the the gold standard for measuring inflation but there's a couple other ways that you can look at it but let's just keep it very simple if we just look at the u.s inflation rate here over the last 100 years you can see that we're at a 30 year high we haven't seen this high of inflation year over year in just about 30 years and so whenever you hear people talk about inflation in the media they usually referring to the 1970s that's where most people that are alive today can remember when inflation was running hot and i think we all can agree that nobody has a crystal ball no one really knows what the future is going to hold for us i personally have my opinions but those are really just that they're just my opinion i think that we are going to be in a higher inflationary environment for the foreseeable future but i have no clue if we're going to get up to you know 15 20 20 here in the coming years but i would say buckle up buckaroo because i think we're here for higher inflation for the foreseeable future but very important that's just my opinion so when looking back in the 1970s what asset classes were doing really well so energy stocks obviously did the best during that time period but i personally i'm not the biggest fan of investing in energy stocks i don't own any energy stocks i don't intend to own any energy stocks i don't believe that they're the future maybe here in the short term yes but when i invest when i look at the investments in my portfolio i look decades into the future and so for me i'm not going to be investing in energy stocks though there are some really great energy dividend stocks out there i really like investing into reits i invest into physical real estate as a do-it-yourself landlord but i also invest into publicly traded real estate investment trusts and i think there's some really really great ones out there i also like investing into dividend growth stocks the dividend growth stocks in this slide here or in this image would fit under the s p 500 but this is the entire index and during that time period we actually they actually saw a negative 16 percent after inflation so that's really you know really bad um so it was a really tough decade when inflation was roaring but the interesting thing is is not all asset classes were affected the same so to better understand your history when looking at inflation and how the economy and different asset classes perform during inflationary times let's take a look at it based off of different asset classes so we look at the 1970s here in the middle we can see that u.s small and mid caps actually performed very well at 11 and a half percent u.s large cap equities performed worse at just under six percent but what's really interesting is world so international stocks apart from the us when it says xus is including everything except for the united states actually performed very well with 10 and then emerging markets with uh with a focus on on fixed income performed the best at over 14 and then you got in here your bonds and your other fixed income and your cash so in the 1970s it obviously was different than in the roaring 80s and the 90s 2000s and the 2010s obviously so it's important to understand every asset class is going to perform different in different micro and macro environments so when i look back in history and i see the different companies that perform the best in the 1970s it really sums down to one thing pricing power the companies that were able to grow their earnings to grow their earnings per share and had pricing power were the companies that actually prospered and became stronger and came out of that time period even stronger so the type of companies that i think about with pricing power are companies with strong brand recognition you know i think of companies like coca-cola like pepsico those type of companies where there's brand awareness brand loyalty and they have pricing power those are the type of companies that do well in environments where you see higher inflation so now let's turn the page on the historical lens of looking at inflation to looking forward vanguard came out with an asset class based outlook how each asset class is going to perform over the next 10 years yes 10 years and so annualized what's really interesting about this from vanguard is they have inflation right around two percent i find that really interesting so if vanguard is saying hey they predict over the next 10 years you're going to have an annualized inflation rate of right around two percent that means we're probably not going to see the same environment that we saw in the 1970s but i think that there should be a big asterisk here because vanguard doesn't know this is just a market outlook a projection but it is obviously never a guarantee but i think it's still interesting because i think the folks over at vanguard they're pretty smart and so let's let's definitely hear what they have to say so with u.s equities they're projecting an annualized return of anywhere from two to four percent that is horrible if you look at the last couple years we've seen equities here in the us range anywhere from 10 twenty percent year over year so this is a completely different direction that we're headed in over the next 10 years if vanguard is right so looking at so breaking it down into different segments here if we look at u.s value they're projecting anywhere from a three to five percent annualized return and if you look at growth this is what's really really interesting they're projecting annualized returns for growth anywhere from negative one percent to one percent that is absolutely insane if you look over the last you know 10 years here ever since the the financial crisis the sectors that have done the best have been more skewed towards growth and i think this is going to be really interesting if the if vanguard is right and that growth really stagnates and it's more skewed towards value i you know in terms of higher returns going forward i think a lot of new investors are going to get shocked by this so moving on with u.s large caps they're projecting anywhere from two to four percent with u.s small cap two to four percent with real estate they're projecting anywhere from two to four percent and this is where it gets really interesting they're projecting global equities so everything apart from the united states they're projecting a five to seven percent annual return over the next 10 years and then lastly here with emerging markets they're projecting anywhere from four to six percent annualized returns this is really interesting because the united states has really dominated in terms of where investors have been parking their money and it looks like if vanguard is right that that will be shifting and you will see your rotation out of u.s equities into x u.s equities now something that i will say i'm not an expert on this by any means but something that makes sense to me is you look at the multiples of u.s equities versus international equities multiples being the price to earnings so how expensive a stock is you're paying a much higher premium for u.s equities today than you are for international equities and so going forward if you see those multiples contract and you see that investors are no longer willing to pay those high premiums for u.s equities it only makes sense that international equities are going to see a rotation into them into the next decade now let me give you an example of what i mean by that so if you go to etf.com and you look at vti vti is the vanguard total u.s stock market so just u.s equities everything from small mid and large cap value growth everything and if you go down here and you scroll down to the portfolio data this is what's interesting if you look at the price to earnings ratio this is a weighted average ratio of prices of a fund's stocks to trailing earnings of the underlying stocks u.s equities are trading at a 32 multiple 32 that is incredibly high and a big contributor of this is the highest weighted stocks in u.s equities in these indexes are gross stocks now if we compare that to international so my favorite international etf is vxus because it includes everything except for the united states and so when you look at vxus and you look at this from the exact same lens this is looking at 8 000 companies outside of the united states and when we look at the price to earnings ratio it's only trading at a 19 multiple so significantly less than u.s equities and so if we do see those multiples contract i think there's going to be a massive rotation into international stocks now i'm not an expert i'm just looking at the data and what the data is telling me is that we're seeing rotations all the time and i see in the next 10 years a larger rotation into international equities than what we've seen in the past so when we really peel back the layers from this outlook from vanguard there's a couple of things that stand out to me u.s equities growth large cap they're not going to be performing the way that they have over these last 10 years we're going to see that market rotation that we always see in different cycles in the market but what i'm noticing is there's going to be a rotation into international equities and what's really interesting is real estate so you add that international component with real estate and that's where i think you may find a lot of great opportunities so remember when we look back at the 1970s what's what asset class was doing really well reits reits did incredibly well in the 1970s vanguard is telling us the international equities are going to perform better and we know that reads performed very well during inflationary times in the 1970s so what could that potentially look like so let me share some of my thoughts with you so we know that in the past reits historically have done very well in high inflationary times we're hearing from vanguard that international equities are going to perform well so where can we find opportunities in that spectrum a company that i personally really love is mpw i've shared an entire video on this company in the past i'll leave a link in the top right but something i love about mpw is it's a real estate investment trust focused on health care health care facilities hospitals behavioral units the type of real estate that there will always be a need for and it's not as cyclical as other segments in real estate but what i really like about mpw is that they are based they are a us-based company but they generate a large portion of their revenue outside of the united states so if we look at their portfolio here you can see that they're operating in nine countries they're focused on general acute care hospitals behavioral health facilities and inpatient rehabilitation hospitals if you look at the type of countries that they're in 60 of their assets are in the united states just under 20 in the united kingdom six in germany just under six in switzerland you get the point so they're in developed countries they're in an area of real estate where it's a a need based real estate it's not as cyclical right it's not like they're you know they're cannabis shops right that could be shut down at any time these are acute hospitals there's a human need behind it when i look at the the dividend metrics for mpw mpw is trading a little bit higher than its four-year average dividend yields so over the last four years if you've averaged the under dollar cost average into it you've gotten just under a six percent dividend yield it's currently yielding just over five percent so it's a little bit pricier than its historical norm when looking at their 10-q their quarterly report here you can see from 2020 to 2021 they've actually increased their international exposure so in 2020 the revenue that they generated as a whole made up 30 of their overall revenue in 2021 their total revenue that they generated in this quarter at the end of september was just over 35 so they're increasing their international exposure and they're growing revenue internationally so when i look at mpw i see this is a company that is growing and it's growing its revenue more so internationally than it is here in the united states and those are two really great things it's a high quality reit and it's growing it's international exposure so before we dive into the 10 different dividend stocks that i want to talk about in this video some other stocks that you could consider that i think are a great place to start if you're a new dividend investor and you're building out your portfolio and you're looking to do some research i think a great place to start is with the dividend kings the reason why i like the dividend kings is all of the dividend kings were in that 1970 high inflationary time and so if they were to if they were able to increase their dividend in the 1970s i think it may be worth looking into because i think these companies they they have what i was talking about earlier they have pricing power so i would highly recommend checking out the dividend kings when looking at your portfolio and seeing okay which companies or which dividend stocks do i want to prioritize looking into the next 10 years where we we don't really necessarily know what inflation is going to be like i think insulating your portfolio with high quality companies like these will help safeguard your portfolio in a higher inflationary environment now i want to share with you my 10 dividend stocks that i believe are a great hedge against inflation now before we dive into these these individual companies i want to reiterate what i've said a few times here in this video we know that reits performed very well in the 1970s the reason why is these are real assets these are tangible assets we also heard and we know from vanguard that their market forecast over the next 10 years is that international equities are going to do better than u.s equities so those are the two big things that i want you to think about when you're looking at these 10 different stocks all 10 of these stocks are in my portfolio all 10 of these have large operations here in the united states but one thing that you will notice all 10 of them have international exposure all 10 of them have operations outside of the united states so when we look at this portfolio it has ten holdings the starting dividend yield is three percent over the last five years this portfolio had you invested a hundred dollars five years ago you would be up sixty 61 this does not include the reinvesting of dividends so drip the companies that i have in here for example i have a retailer like walmart walmart has a big exposure here in the united states as well as internationally walmart is very heavily invested in canada and in south america the thing about walmart that is very interesting that not a lot of people give it credit for is they're growing their e-commerce business their e-commerce business is growing almost faster than amazon now i i know that a lot of you are probably going to be raising your eyebrow when you hear that but walmart's e-commerce is growing just as fast as amazon or just about absolutely incredible walmart is growing like crazy the next one here is wpc wpc is a reit it's a real estate investment trust the reason why i like wpc is for a couple of couple of reasons they're a diversified read they're in industrials and office buildings they have operations here in the united states as well as about a third of their operations are out of europe so it's an international re and it's exactly what i was just talking about if you can marry those two reits and international i think there's going to be a great opportunity the third one here is philip morris this is a tobacco company it's a sin stock i know a lot of you watching this video are not a fan of sin stocks but i think when you just look at the numbers when you look at their operation this is philip morris which is focused on international not in the united states the fourth one here is pepsico i think everybody knows pepsi the thing that i love about pepsi is they are so internationally positioned to do well regardless of what market conditions whether on a micro and a macro level pepsi is so well positioned they have such an incredible moat when it comes to their business the fifth one here is going to be procter gamble procter gamble generates revenue not only here in the united states but also internationally procter gamble has amazing brand loyalty the products that you have your consumer products you probably don't even know it but you're using proctor and gamble products on a daily basis the next one here is mpw the one that we just talked about i am so bullish on mpw i think it is one of the best reits out there with international exposure the next one here is mcdonald's i don't think you can go to any country and not talk to somebody that doesn't know mcdonald's mcdonald's is a technology company it's a food company and it is a real estate company so international real estate pricing power you name it mcdonald's really is one of the the best of the best when looking at a higher inflationary time the next one here is lockheed martin lucky martin has a massive moat they do operations primarily with the government they are international here in the united states and abroad this is a company that i personally believe is on sale today i think it's a great opportunity this one is a little bit cyclical because a lot it really does fluctuate with with the governments you know which which party is in power but overall is a very high quality dividend stock the next one here is honeywell honeywell is an international company its revenue is generated across the globe so not just here in the united states and the last one here is coca-cola everyone knows coca-cola the brand coca-cola is one of the most valuable brands in the world it's been one of the most valuable brands in the world for decades and i believe that it will continue to be that you can't go to any country in the world and ask somebody you know do you know what coca-cola is and not have them know what coca-cola is the 10 dividend growth stocks here are just a few examples of those that you can be looking at when you're building out your portfolio by no means is this portfolio final right i'm not saying hey take these 10 stocks and only invest into these 10 stocks i think you need to have a hybrid approach to how you're viewing dividend investing you have to have a growth component you have to have a value component you have the portfolio has to meet your needs and your goals and in order for it to meet your goals you have to know what your goals are for example this portfolio has a higher starting yield but if you have a longer time horizon it may make more sense to focus a little bit more on growth say for example you're in your 20s maybe you would want to have more exposure to mcdonald's and less exposure to lockheed martin for example so these are just 10 examples of 10 high quality dividend growth stocks that i own that if you're concerned about inflation take a look at these companies and really understand how they generate the revenue where they generate their revenue what is their competitive advantage do they have a moat do they have pricing power and i promise you if you understand these things the topic of inflation will no longer keep you up at night but in fact it'll actually get you excited because you know that your position for whatever comes thank you so much for watching everybody i hope that you learned something new don't get scared about inflation educate yourself understand what it means be prepared and i'll catch everybody in the next video you know what i think we're going to be friends can everyone say hi to my friend that's crazy i just wanted to say thanks i'm glad you came along partner [Music]

Channel: Dividend Growth Investing

Views: 6,097

Keywords: dividend growth investing, dividend investing, reits, when will inflation go down, current inflation rate in us, what is the current inflation rate, what does inflation mean, current rate of inflation, rate of inflation 2021, inflation rate, what is inflation, 2021 inflation, hedge against inflation, best inflation hedge, best hedge against inflation, best inflation hedge 2021, 2021 inflation rate, best dividend stocks 2021, best dividend stocks to hedge against inflation

Id: O-tum0awU-E

Length: 25min 23sec (1523 seconds)

Published: Sun Dec 12 2021

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[u/DivGrowthInvesting]

With the current inflation rate at a near 30 year high, there is no wonder many investors are starting to get concerned. People are talking more about inflation than ever before. In this video I cover four topics around inflation:

1) Inflation: Know your history

2) Inflation: How to prepare for the future

3) International REIT to watch

4) 10 dividend growth stocks to hedge against inflation