03-02-2021, 07:59 AM
(03-02-2021, 12:02 AM)crimsonghost747 Wrote: I believe the word "growth" in dividend growth investing is my main hedge against inflation.
My plan is to live off the dividend income, so as long as my portfolio's annual dividend growth rate is higher than inflation, then that should lead to a situation where I have more purchasing power each year compared to the last one.
The other option is to live off of the dividends after inflation is accounted for. Let's say the inflation rate in a given year is 2.4%, and you are 100% invested in AT&T with its 7.4% dividend. If you only draw 5% of those dividends and allow the rest to reinvest, you'll keep up with inflation. If you say draw 4% and allow 3.4% to reinvest, you'll have more purchasing power each year as well.
It might be an approach worth considering if someone's nest egg at retirement isn't quite high enough to go into the typical 2-2.5% range of the dividend growth stocks to have enough income.