During a period of inflation, a dollar purchases less goods and services than in the past. Inflation is negative when it comes to most investments because it undermines real asset values and increases required yields. Smart investors know that purchasing dividend stocks with a yield greater than four percent and buying dividend stocks are two effective ways to deal with inflation.
Growth stocks are shares in companies with expected above-average earnings growth in relation to the market. These stocks do not usually pay dividends because the company instead uses the earnings for capital project re-investments. Many technology companies are considered growth stocks.
Investors should be aware that some growth company stocks are not classified as such. In many cases, growth company stocks are undervalued. This creates an ideal situation for an investor because there is the opportunity to purchase the stock at a bargain price. Inflation affects the price/earnings ratios of companies, so investors should put their money in companies whose growth can offset this situation.
Dividend stocks provide passive income to investors throughout their holding period. During times of inflation, investors should purchase dividend stocks with yields higher than four percent. This will allow the amount of dividend income to outpace the inflation rate. If the dividend growth rate is increasing, these investments will yield an even more positive result.
Inflation is often negative for investors but they can find ways to turn this bad situation into something good. Investing in growth stocks and dividend stocks with a yield greater than four percent are two recommended techniques. These allow investors to stay ahead of the inflation rate while taking advantage of undervalued stocks. When the inflation rate declines, these investors will be sitting even prettier while others are just beginning to dig themselves out of the investment black hole.
Source: www.istockanalyst.com.
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