Sick Dividends

Searching For Healthy Profits In The Stock Market



By Ryan James, Dividend Analyst Fellow


Inflation is high, and the stock market is languishing, doing nothing to help. The May CPI report showed higher-than-expected inflation at 8.6% against the 8.3% expected. Not only is inflation high, is it increasing. May’s level of inflation was a forty-year high and beat April’s rate of 8.3%.

The stock market, delivering an average annual return of about ten percent, is usually a great method to counteract inflation when it is between a nominal rate of three to four percent. With the stock market down, a large contributing factor for which is inflationary woes, investors must take a different look to compensate.

Inflation Matters

With the prices of nearly everything increasing dramatically and the value of the dollar itself decreasing, investors need supplemental income—high-growth dividend stocks present themselves as a great source of this income. In an example using ten percent annual inflation, a worker who earns annual raises of five percent loses much of his or her purchasing power over time. While the loss may seem small at first, it compounds. The purchasing power loss adds up. If the worker makes $100,000, the purchasing power of his or her salary decreases by five percent every year. In the initial year, he or she is paid $100,000. While, in the tenth year, he or she will be paid $162,889.40, 62% more than in the initial year, but that amount will be worth significantly less. That $162,889.40 in the tenth year is the inflation adjusted equivalent of $97,528. Meanwhile, everything else costs more. After ten years of five percent raises, the employee’s real wage decreased by 2.75% or $2,750, concurrently lowering his or her purchasing power by the same amount. The employee has been running harder and harder to fall backwards economically. 

Dividends are an eminent avenue to transform growing investments into cash that can be reinvested or diverted into income. Long-term investments can provide income that can be harvested without requiring an investor to sell their assets. This income may grow faster than inflation. 

Or an investor can use a dividend reinvestment program to automatically put the income received in a dividend payout back into the same stock, allowing the investment to compound faster than inflation.  Dividend stocks with growth outpacing inflation can provide an outlet to offset inflation, mostly irrespective of the stock price performance. While most employees struggle to obtain an annual raise above 3 or 4 percent, dividend growth in excess of 10% is not uncommon. Below, we will explore some examples of companies who have an excellent chance of growing their dividend faster than the rate of inflation. 


NextEra Energy 

NextEra Energy (NYSE: NEE) is a utility company and the parent company of Florida Power and Light (FPL), a near-monopolistic electricity provider in the state of Florida, the seventh-fastest growing state in the US. As investors shift towards an Environmental-Social-Governance (ESG) mindset, many will choose to invest in NextEra Energy. The company focuses on delivering clean and affordable nuclear, solar, and wind energy to almost every resident of Florida. They have a shrinking natural gas portfolio and focus heavily on nature conservation; their Turkey Point Nuclear Generating Station is home to a massive wildlife preserve. Most of the company’s wind turbines have been constructed or retrofitted to account for the safety of avian wildlife, an often mentioned qualm with wind power under the Trump administration. Aside from individual, independent solar power, there is significantly little competition for NextEra Energy’s subsidiary Florida Power and Light.

NextEra Energy has a one-year dividend growth rate of 10.1%, 83.72% higher than the utility sector’s median rate of 5.5%. The company’s five-year average is 12.49%, but, while it is well below its own average, it is still experiencing substantial growth in conjunction with a large dividend built from years of extensive growth. It has a three-year dividend growth rate and a five year-dividend growth rate of 11.14% and 11.83%, respectively. These are, fortunately, higher than its ten-year dividend growth rate of 10.91%, about the same as its one-year dividend growth rate. Over the past ten years, its dividend has grown 143.92% more than that of the sector median. NextEra Energy’s one-year dividend growth rate is 16.04278% higher than May’s annualized inflation rate of 8.6%, and, even more importantly, its five-year dividend growth rate exceeds inflation, beating it by 37.55814%. NextEra Energy has a dividend yield of 2.35%, an dissatisfying yield. But its stability and high dividend growth make up for it.


AbbVie (NYSE: ABBV), a spin-off of Abbott Laboratories, is a biopharmaceutical company based in Chicago, Illinois. The company’s portfolio of pharmaceuticals includes Botox®, Humira®, Rinvoq™, Skyrizi®, Lexapro®, Venclexta®, and many others. It is one of the relatively few stocks in the S&P 500 that is up year-to-date.

AbbVie has a dividend yield of 4.05%, above the industry average of 3.64% and especially high for such a stable, well-performing stock. The company’s five-year dividend growth rate is a notably high 17.5%, outpacing May’s inflation by 103%. Its one-year dividend growth rate, at 9.27%, also beats the current inflation rate. The sector median five-year dividend growth rate is far lower than AbbVie’s, sitting at 6.56%. While its dividend growth has temporarily slowed, Abbvie seems positioned to deliver further growth in a healthier market.


Sherwin-Williams (NYSE: SHW) has a low dividend yield of 1.01%, especially when compared to its industry average of 2.34%, but it has had excellent growth. Sherwin-Williams has experienced a five-year dividend growth rate of 15.34%. This is far above the sector median of 7.13%. The stock has had less-than-ideal performance, but, unlike many other companies with high dividend growth, its one-year dividend growth rate, 19.05%,  is higher than that of five years. All of these numbers run laps around our current inflation rate of 8.6%.

The sector median does follow the same trend; however, Sherwin-Williams has stronger growth, increasing 24% from its one-year to five-year dividend growth rate, compared to the sector average of 20%. This economic environment in which almost all stocks, especially tech stocks, are underperforming presents a buying opportunity for this high dividend growth value stock that has little involvement in the plummeting technology sector. 


The future of inflation in America is cloudy. The Federal Reserve has begun an aggressive program of interest rate raises in an attempt to get the problem under control. This may crash the economy, which may bring inflation down. However, we are also facing long term changes in global trade, power supply, and labor supply which could easily boost inflation for years to come. Today’s astute investor cannot stand idly by and simply hope that inflation vanishes. Dividend stocks that can grow their payouts at a strong and steady rate offer powerful protection from this economic menace.




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