How can my portfolio beat inflation this year | Smart Change: Personal Finance

Due to declining readership, the series of articles on that portfolio ended after a few years. Since my real money was invested in this account, I pretty much kept it invested with the same principles that launched the chain in the first place. Even with today’s uncertain economy and market, the wallet appears to have performed well as it was designed.

Since the wallet’s launch in December 2012 until June 30, 2022, its value has increased from $30,000 to $101,738.14, more than tripling in just under a decade. Although respectable, his total return of 239% during that time was largely in line with the total return of 221% of SPDR S&P 500 Index ETFAnd the Standard & Poor’s 500An exchange-traded fund to track indices, with profits reinvested.

More importantly, the portfolio has largely achieved against key income growth design criteria. In fact, there is a very real chance that the dividend-like income you will pay in 2022 will be sufficiently higher than the dividend-like income you earned in 2021 to outpace inflation. This is true even with an inflation rate of 8.6% that exceeds the daily purchasing power of consumers.

In 2021, this account generated $2,679.81 in dividend-like income. As of June 30, 2022, it has made $1,454.38 so far this year. Assuming the back halving ends just like the first half, the projected $2,908.76 in dividend-like income for 2022 would be just 8.5% higher than it earned in 2021. While this is not the case so far After beating inflation, it only assumes that the second half of the year will be exactly the same as the first. Instead, there is good reason to believe that it could be even stronger.

The three main divers of optimism come from a combination of earnings growth, opportunistic reinvestment, and prudent portfolio pruning.

From an earnings growth perspective, a number of portfolio picks actually increased their earnings between March and June 2022. Elevator and escalator manufacturer Otis global He led the shipment with a massive increase of 20.8%, despite the railway giant Union Pacific And their 10% increase also didn’t hurt. As a result, even if its dividend remains flat for the rest of the year, that increase translates into more dividend income in July through December than in January through June.

And who said the other companies in the portfolio should keep their dividend payments constant? Cereal giant general mills The credit card company announced a 6% increase in its dividend starting in July financial synchronization It will raise its dividend by 5% over the second half of this year as well.

The portfolio is built around companies that have a history of increasing their profits, so it should come as no surprise that many of them have managed to maintain this trend. However, the great thing about having investments that generate cash profits is that they give you cash to invest, without the need to sell your existing property or make an additional deposit into your account.

It is an opportunistic reinvestment of that money that gave birth to me that enabled me to acquire shares in the industrial conglomerate 15:00 In February of this year, after increasing its dividend for the 64th consecutive year. Even though my purchase missed the company’s first-quarter dividend, that means the account is very likely to receive $3 million more in dividends in the second half of 2022 than in the first.

And finally, there’s the purse trim. Although the calculation is based on companies that have a history of paying and increasing their dividends, it is important to remember that dividends are never guaranteed payments. The account owns stakes in two companies – Giant Entertainment Walt Disney A manufacturer of generic pharmaceuticals Teva Pharmaceutical Industries Co – that wiped out their profits.

Both have seen their businesses recover well enough that if they want to resume paying their dividends, they can make it happen. Disney, in particular, has made it clear that it prefers reinvestment rather than directly rewarding its shareholders with money. These companies are of course free to operate as they see fit, but canceling dividends and failing to recover those payments makes them incompatible with a portfolio geared toward income growth.

As a result, I sold these two companies and used the proceeds (plus some extra cash I had accrued from other dividend payments) to buy stock of an auto parts retailer. original spare parts. I received my first dividend payment from this purchase on July 1, ensuring that the account gets more dividends from that company in the second half of 2022 than in the first half.

Add a strong front-half dividend performance to the already announced dividend measures for many of the companies this portfolio holds, and there’s a very good chance their income growth will beat inflation. At a time when inflation is at its fastest pace in more than 40 years and the stock market is down more than 20%, it’s good to know that there is Something With the possibility of continuing to keep up.

Dividends are never a guaranteed payout, but with the combination of some dividend growth, opportunistic reinvestment and prudent portfolio pruning, they can still deliver benefits today. With the market down as much as it has been lately, now might be a great time to start looking at competitive pricing on dividend paying companies to give yourself a chance to keep up as well.

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Synchrony Financial is an advertising partner of The Ascent, the Motley Fool Company. Chuck Saletta holds positions at 3M, General Mills, Genuine Parts Company, Otis Worldwide Corporation, Synchrony Financial, and Union Pacific. Motley Fool has positions at Walt Disney and recommends them. The Motley Fool recommends 3M and Union Pacific and recommends the following options: long January 2024 calls worth $145 on Walt Disney and short January 2024 calls worth $155 on Walt Disney. Motley Fool has a disclosure policy.