Beat Inflation with High-Dividend Stocks

When the stock market is under the horns of the bull, you can quickly pave your way to riches. But when it's under the paws of the bear, you can quickly lose a bundle. Adapting a slow and steady investing strategy will win the race no matter which animal is controlling the market.

You don't need big stock profits to secure your retirement. Superior dividend returns can do the same job, with fewer sleepless nights.

Instead of swinging for the fences every time, the dividend stock plays it safe. By raising the dividend every year, come what may, boring businesses like major banks, water and power utilities, or basic materials producers can guarantee better returns than any savings or money-market account you'll find. When a payout champion like that goes on "sale" due to plummeting stock prices, it's time to pounce.

Double the benefits

Any excellent stock that's discounted merits a second look, including proven dividend masters. While stock price growth is nice when the company climbs out of whatever misfortune put it on the sales rack to begin with, a lower price boosts the dividend yield right away.

Imagine an insurance provider whose stock is worth $10 a stub, and the company pays out $0.25 per share every year. That's a 2.5 percent yield. Now imagine buying the same stock for $7.50 a share instead. The dividend yield just jumped to 3.3 percent, which is why it pays to buy dividend stocks during recessions and temporary market setbacks. Any share price gains are simply a bonus on top of the almost-certain payout increases.

No sure things

There are more than 100 companies on the public market today that have increased their dividends per share every year for the last 30 years or more. Each increase may be small, but it adds up over time. Take, for example, a well-known consumer goods company that has bumped its payout annually since 1977 (McDonalds). If you bought a share of this stock 30 years ago, in a year where the company paid out $0.36 per share to its owners and the stock cost about $55 per share, the 0.6 percent yield may have seemed paltry. Today, after several stock splits and a steadily advancing dividend, that same share pays out $1.50 per share, or $60.75 per 1978 stub.

The stock is now worth about 45 times what it was three decades ago. But it also pays out more than the original investment in pure dividends every year.

Why does this work?

Businesses have serious incentives to keep the dividends flowing. Investors see any payout cut, or failure to raise the rate, as a sign of impending doom. Naturally, this isn't the kind of image any management team wants to create in the investing marketplace. Therefore, once a dividend champ, always a dividend champ-more or less.