Wednesday’s choppy trading ended in a loss for stocks. Modest decreases for the Nasdaq Compound (-0.1% to 10,417) and the S&P 500 Index (-0.3% to 3,577) saw both indexes extend their losing streaks to six days, while the Dow Jones Industrial Average lost 0.1% to 29,210.
The focus today was on September’s Producer Price Index (PPI), which showed wholesale inflation rose at a faster pace than expected last month. Meanwhile, the core PPI, which excludes volatile food and energy prices, posted its largest month-over-month increase since May.
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Inflation data preceded the release this afternoon of the minutes of September’s Federal Open Market Committee (FOMC) meeting, when the central bank issued its third consecutive hike of 75 basis points (one point basis = 0.01%). The minutes showed that searing inflation is still a central concern for the Fed and confirmed that the central bank “must adopt, and then maintain, a more restrictive policy” in order to ease price pressures.
Not all dividend stocks are created equal
Today’s PPI report makes tomorrow’s Consumer Price Index (CPI) release all the more critical, especially as the Federal Reserve continues to be concerned about stubbornly high inflation. “There is no doubt that the Fed still has its work cut out for it, and if tomorrow’s CPI is hot, don’t be surprised to see some investors realizing how far they have to go to get inflation under control. “, says Mike Loewengart, head of portfolio construction at Morgan Stanley Global Investment Office.
We’ve talked many times in this space about how investors can protect their portfolios against potential market volatility, including with dividend-paying stocks. But not all dividend payers are created equal. “Too often people are drawn in by the lure of high yield, not realizing that the company doesn’t have the financial strength to pay the same level of dividend in the future,” says Austin Graff, Co-Chief Investment Officer and Portfolio Manager of the TrueShares Low Volatility Equity Income ETF (DIVZ). “Combine that with the fact that we have entered a new paradigm in the market, from extremely easy monetary policy to tighter monetary policy, the dividend yields of companies that depend on heavy debt become suspect.”
As such, it’s important for investors to focus on high-quality dividend-paying stocks, which are often found in companies that are constantly increasing their payouts. The obvious place to start is the Dividend Aristocrats, an elite group of S&P 500 stocks that have increased their dividends for 25 consecutive years. There are also the Dividend Kings – the creme de la creme of dividend producers who have increased their payouts for at least 50 consecutive years. Check them.