Addressing the Impact of Inflation with a Dividend Income Approach

Premium Content

31 October 2022
| By GQG Partners |
image
image
expand image

For the first time in 30 years, investors are facing an environment of persistent inflation. We have seen consumer prices rise, and stay elevated, due to a combination of fiscal and monetary stimulus packages to support economies that were locked down during the COVID-19 pandemic, supply chain disruptions, and recent geopolitical events. The Federal Reserve has responded with a series of interest rate increases that are expected to continue into year-end.

Inflation and rising interest rates have resulted in losses across capital markets this year. Many bonds have static cash flows of interest payments and principal repayment. Inflation erodes the future purchasing power of those static cash flows. Bond prices are also highly sensitive to interest rates such that rising rates result in mark-to-market losses, which we have witnessed this year.

Long duration growth stocks, characterized by a current lack of profitability as they spend to grow their operations and gain market share, are also very sensitive to changes in interest rates. While these equities posted strong gains during the pandemic when rates were near zero in the U.S., they have slumped this year as the Fed tightened monetary policy. As a result, we have seen a rotation in leadership in the equity market from long duration stocks to less speculative names.

Meanwhile, during this year’s global market volatility, high dividend paying companies have been outperforming broader equity market indices due in part to the contribution to total return that dividends provide. At GQG Partners, we have long viewed dividend income as an important source of total return in an equity portfolio. In fact, from 1900-2021, dividends have contributed strongly to the performance of the S&P 500 Index – representing almost half of its total return.

Dividends play a key role in portfolios, in our opinion, and may help weather the storm of high inflation, rising rates, and a potential slowdown in global growth. We believe that our quality-first, forward-looking approach to dividend investing is worth revisiting.

Read the full paper

 
GQG Partners
GQG Partners

GQG is more than just an asset manager. We have created an environment that nurtures excellence and innovation, with an ...

Latest articles

Read more about:

Add new comment

The content of this field is kept private and will not be shown publicly.
 

Recommended for you

 

MARKET INSIGHTS

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

Chris Cornish

By having trustees supervise client directed payments from their pension funds, Stephen Jones and the federal Labor gove...

3 days ago
Chris Cornish

Now we now the size of Stephen Jones' CSOLR tax, I doubt anyone will be employer any new financial adviser from this poi...

3 days ago
JOHN GILLIES

Amazing ! Between the beginning of licencing Feb 2002 and 2008 this was a very good stable industry.Then the do-gooders...

3 days 19 hours ago

AustralianSuper and Australian Retirement Trust have posted the financial results for the 2022–23 financial year for their combined 5.3 million members....

10 months 2 weeks ago

A $34 billion fund has come out on top with a 13.3 per cent return in the last 12 months, beating out mega funds like Australian Retirement Trust and Aware Super. ...

10 months ago

The verdict in the class action case against AMP Financial Planning has been delivered in the Federal Court by Justice Moshinsky....

10 months 2 weeks ago

TOP PERFORMING FUNDS

ACS FIXED INT - AUSTRALIA/GLOBAL BOND