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Got Inflation Blues? Consider Dividend Stocks: Wharton's Siegel

Dividend stocks are the best way for investors to cope with inflation, says renowned Wharton School finance professor Jeremy Siegel.
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Dividend stocks are the best way for investors to cope with inflation, says renowned Wharton School finance professor Jeremy Siegel.

Inflation rose to the fore again Wednesday, when the government reported that consumer prices jumped 7% last year, the biggest 12-month increase in 39 years.

“Dividend stocks are protected against inflation, because firms have been able to raise their prices, their cash flows, and increase their dividends,” Siegel told CNBC. “I think that’s what investors are going to seek in 2022.”

He’s not fond of Treasury Inflation Protected Securities (TIPS), given their negative yields.

“That’s not an answer,” he said. “You have dividend-paying stocks at 2.5%, 3%, 3.5%, 4% [yield] … and you have capital gains.”

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As for dividend investment choices, Morningstar analyst Lan Anh Tran rates the Vanguard Dividend Appreciation ETF  (VIG) - Get Vanguard Dividend Appreciation ETF Report as gold, the firm’s top rating.

“Vanguard Dividend Appreciation focuses on quality franchises that have reliably increased the amount of cash they give back to shareholders over time,” she wrote in a commentary last year.

The fund’s “stringent selection criteria yield a portfolio that balances income, capital appreciation, and risk” Tran said. “The long look-back period ensures constituents are stable companies with a proven track record.”

Meanwhile, Morningstar analyst Ryan Jackson rates SPDR S&P Dividend ETF  (SDY) - Get SPDR S&P Dividend ETF Report as silver, the firm’s second highest rating.

“This index strategy’s demanding requirement that each stock has increased its annual dividend in each of the past 20 years confers benefits,” he wrote last year.

“Only consistently profitable firms check this box, so this fund bends toward the quality factor, which has historically been tied to market-beating performance.”

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