Inflation emerged as one major concern for both investors and consumers in 2021. No one likes to pay more for goods and services, not to mention that to increase an investor’s purchasing power, returns need to outpace the inflation rate. Fortunately, there are ways to fine-tune your investing to navigate these challenging conditions.
Let’s consider one great strategy that can mitigate inflation risk in your portfolio: dividend-paying shares. Many investors seek companies with solid dividends because they are looking for ways to generate passive income on the side. But the truth is, even non-income-seeking investors can benefit from dividend stocks.
To make the most of these stocks, dividend reinvestment is a great move to consider. It allows investors to purchase more shares of a company with the dividends the company pays. Most brokers have automatic dividend reinvestment options at no additional fees. According to a report by Hartford Funds, 84% of the S&P 500‘s total return between 1970 and 2020 can be attributed to reinvested dividends.
In the long run, investing in solid dividend-paying companies will undoubtedly help you tame inflation. But which stocks should you buy? Let’s consider one excellent option.
A dividend you can take to the bank
Pharma giant Johnson & Johnson (NYSE:JNJ) has a storied dividend history. The healthcare juggernaut is in the very elite club of Dividend Kings — companies that have raised their payouts for at least 50 consecutive years. That’s a fantastic feat, and it doesn’t stop there.
Johnson & Johnson currently offers an above-average yield of 2.44% along with a cash payout ratio of 48%, giving the company ample room to sustain dividend increases. Johnson & Johnson’s historical performance is outstanding, and for investors willing to be patient, the company should continue to deliver solid returns. Here’s why.
Johnson & Johnson is currently going through a transformation. In November, it announced its intention to shed its consumer health segment, which is home to many popular over-the-counter brands such as Listerine and Neutrogena. The move, scheduled to be completed by the end of 2022, will make the drugmaker’s business less diverse, but it will help the company focus on its more profitable and faster-growing segments: pharmaceuticals and medical devices.
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