Categories
Investing

These income strategies can help protect your stock investments from inflation and a recession – MarketWatch

There is always uncertainty in the stock market, but the deflationary cycle that helped feed tremendous gains over the past several decades has ended. Two related strategies can give you downside protection while still capturing mos…….

There is always uncertainty in the stock market, but the deflationary cycle that helped feed tremendous gains over the past several decades has ended. Two related strategies can give you downside protection while still capturing most of the upside potential of stocks.

The two strategies: 1. Selecting stocks of companies that have been increasing their regular dividend payouts rapidly. 2. Augmenting that dividend income through the use of covered call options.

Kevin Simpson of Capital Wealth Management in Naples, Fla., co-manages the $1.2 billion Amplify CWP Enhanced Dividend Income ETF
DIVO,
+0.41%,
which is rated five stars (the highest) by Morningstar. The exchange traded fund tends to hold about 25 stocks and is actively managed.

During an interview, he explained how the ETF uses both strategies.

Dividend growth — that’s the secret. That is the true hedge against inflation.


— Kevin Simpson, founder and chief investment officer of Capital Wealth Planning.

With inflation at its highest point in decades, investors may be in for a years-long cycle of rising interest rates and other policy tightening by the Federal Reserve. With other challenges to companies, including supply shortages and increasing labor costs, the smooth path of rising profits will be challenged, which can lead to more volatility for stocks.

Selecting stocks for rising dividend income

Simpson emphasized that his main strategy is selecting blue-chip companies that he and his colleagues expect to continue raising dividends rapidly. The companies are screened for quality — management track record, earnings and cash flow growth and returns on equity.

Simpson called dividend growth “the true hedge against inflation.” For many investors, high inflation is a new phenomenon, and we’re at an early stage of the counter-cycle of rising interest rates that can create a difficult environment for the broader stock market.

Despite having “income” in its name, DIVO’s objective is to provide a total return competitive with the broader stock market, with lower volatility and an attractive monthly dividend. The annual dividend yield is 4.82%, according to FactSet.

Simpson said the Dow Jones Industrial Average
DJIA,
-0.30%
is a fair benchmark for DIVO’s performance. Here’s a three-year chart showing how the ETF has performed against the Dow and the S&P 500
SPX,
-0.78%,
all with dividends reinvested:

<span class="wsj-article-credit article__inset__image__caption__…….

Source: https://www.marketwatch.com/story/these-income-strategies-can-help-protect-your-stock-investments-from-inflation-and-a-recession-11649173093

Leave a Reply

Your email address will not be published.