Beat Inflation with These Profit-Linked Dividends

Dividend Investing, Inflation
by Tim Plaehn
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Stacked coins on a level.

Dear Investor,

Investors are rightfully worried about inflation, which is now running at more than 7%.

It will be challenging to decide which companies and stocks will be hurt by higher prices and which will benefit. One surefire strategy will be to invest in commodity producers that have directly linked their dividends to profits.

These “very good for investors” dividend policies can be found from select energy producers and gold miners…

Crude oil producer Devon Energy (DVN), for example, was one of the first to establish a variable dividend policy. The policy was initiated at the beginning of 2021. Each quarter, Devon declares a fixed-plus-variable dividend to pay out up to 50% of excess free cash flow generated for the quarter. With the climbing price of oil, the most recent $1.00 dividend is 827% higher than what was paid for the fourth quarter of 2020.

As a result of the new dividend scheme, Devon was the best performing S&P 500 stock for 2021. The share price is up 22% so far this year.

Other upstream energy companies such as Marathon Oil (MRO) and Pioneer Natural Resources Company (PXD) have instituted variable dividend policies, too.On the mining front, gold mining company Barrick Gold Corporation (GOLD) became the newest member to the commodity-based variable dividends stocks list last week. The Barrick dividend plan is based on the net cash on the balance sheet at the end of each quarter.

Gold miners have a relatively fixed cost to produce an ounce of gold, so any increase in the value of gold goes directly to the bottom line. Or, in the case of Barrick Gold, to the net cash in the company. As gold prices go higher, investors in Barrick Gold will see both share price appreciation and significantly larger dividend payments.

I really like the idea of companies sharing windfall profits with investors. I hope more companies adopt variable dividend policies.But you don’t have to wait. Because today is already the greatest opportunity in 22 years for retirees to live off of monthly income from stocks. Learn more here.

Author: Tim PlaehnTim is the lead investment research analyst for income and dividend investing at Investors Alley. He is the editor for The Dividend Hunter, an investment advisory focused on creating a high-yield income stream and it's companion service The Dividend Hunter Insiders, Weekly Income Accelerator, a covered call trading service, and for investors looking for long-term total returns from their income investments using stocks with ever-growing dividend payments, he offers Monthly Dividend Multiplier. He co-edits POWR Income with Jay Soloff. Prior to his work with Investors Alley, Tim was a stock broker, a Certified Financial Planner, and F-16 Fighter pilot and instructor with the United States Air Force. During his time in the service he was stationed at various military locations in the U.S., Europe, and Asia. Tim graduated from the United States Air Force Academy with a degree in mathematics. In his free time he tours the United States parks, campgrounds, and wilderness areas in his travel trailer.
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