Today, I want to tell you how dividend growth investing can help you fight inflation. Ready? Let’s dig in.

Dividend growth investing helps you to fight inflation through the growth in your passive dividend income. Inflation is omnipresent. There’s no getting away from it. So you need to fight it head on. And not just for a little while, either. For the rest of your life. Inflation is a long-term problem. Dividend growth investing is a long-term solution. How does dividend growth investing fight inflation? Well, it uses inflation to its advantage in an ingenious way. Let me explain. Dividend growth investing turns inflation on its head and makes it work for you. So wait. Inflation isn’t our enemy? It’s our friend? Well, kinda sorta. See, the very mechanism behind inflation – the rising costs of goods and services – is the same mechanism that allows for much of the rising profits that fund – you guessed it- rising dividends. Let’s use a simple product as an example that anyone can understand. Take a Big Mac from McDonald’s, for instance. The Big Mac Value Pack, a predecessor of the Extra Value Meal, sold for $2.59 in 1985 [source]. That same Extra Value Meal now sells for over $6.00. That’s more than double the cost of that particular item inside of my own lifetime. This is inflation at work. But guess what happened while the price of that Big Mac meal was going up, year after year, like clockwork? The revenue and profit for McDonald’s was also going up, year after year, like clockwork. And while the Big Mac meal was going up, so was everything else they sell – drinks, fries, other burgers, shakes, etc. If the products they’re selling are being priced at a higher level, that naturally means a higher amount of revenue and profit, all else equal. Guess what else has been rising for all of these years, like clockwork? Yep. The dividend that McDonald’s pays out to its shareholders.

McDonald’s Corp. (MCD) has increased its dividend for 45 consecutive years. That time period stretches through wars, recessions, and even our recent global pandemic. So while the cost of goods and services is going up, so is the dividend from McDonald’s and many other dividend growth stocks. There are hundreds of dividend growth stocks, representing equity in world-class enterprises, that are doing this same thing. Not only that, but the dividend is growing faster than inflation. Indeed. Not only does McDonald’s see its revenue, profit, and dividend rise as a natural side effect of inflation inflating the costs of the goods it’s selling, but it’s also selling more of these higher-priced products to more people. It’s a triple threat. More products being sold. Higher prices on those products. And more people buying the products. McDonald’s is just one example. There are hundreds.

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