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Dividend Investing for Inflation Uncertainty

Real Money's Jim Collins says 'cash flow never lies,' and, as a retail investor, your cash flow is the stream of dividends you receive.

Inflation might be the biggest issue on the market today. Hotly debated by economists, investors and policy makers alike, just about everyone has an opinion on what will happen. This creates a lot of uncertainty for investors of all stripes. 

If you want to keep your head down and wait for the inflation question to resolve, how can you protect your portfolio? With income investing based on real returns, Real Money's Jim Collins says cash flow never lies. In his recent column he writes:

"There are no experts anymore. In the past two weeks I have seen negative market commentaries from some of the old-heads I respect the most, Jeremy Grantham, Leon Cooperman, and even Dr. Doom himself, Nouriel Roubini, but the market just does not care. Not for more than 45 minutes, anyway."

"The motto of my firm, Excelsior Capital Partners, is 'cash flow never lies,' and, as a retail investor, your cash flow is the stream of dividends you receive," Collins says.

The way you can fight inflation in your portfolio is, Collins writes, “to play it directly.” Look for assets that provide real, stable yields over the long run. Don’t get sucked in by advertisements or long term promises. What are those investments? Get more of Collins' investing ideas and trading strategies on Real Money. 

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 Start with hard numbers. A simple search of the S&P 500 organized by yield is a great place to start. Find the firms that have been returning large, steady dividends and jump in.

"I don't care about growth in dividends or reliability of payments... what I am telling you is that in July 2021, that doesn't matter, Collins wrote. "The macro calls for a purely mechanical approach, so I kept with it and finally found a decent list here."

"If you are smart enough to get your investing advice from Real Money, you are smart enough to know which of those dividends are sustainable and which are not. Most are, and remember that in this Covid-19 'Delta' variant world, energy = good, cruise lines/hospitality = bad."

"Arm yourself with real returns to protect against valuation corrections. It works well," he said.

For investors looking to protect themselves in an uncertain inflationary environment, Collins’ advice is simple. Trust your yields and invest for cash. In other words, pursue an income-investing strategy. You may not be able to know what’s going to happen with regard to capital gains or the market at large, but cash flow into your account doesn’t lie.