Dividend Income To Beat Inflation in Recession

Published / Last Updated on 24/11/2022

The UK is officially in recession according to the Office for Budget Responsibility.  We have already done videos on where to invest and where not to invest during a recession:

Recession Invest  Recession Avoid

What did well after recession through the 1980s and after 2008 Credit Crunch?

  • Discount Supermarkets (consumer staples as we all need to eat)
  • Healthcare (we all need to be healthy)
  • Food and restaurants
  • Freight and logistics (transport)
  • DIY and Repairs (real estate)
  • Consumer staples in general
  • Utilities people still need power (although it may be from greener sources now)
  • Discount Retailers (no more expensive shopping, it’s back to ‘Primani’ and the local market stalls.
  • We also see opportunity for a technology revolution, 5G communications are not yet fully utilised and healthcare. 

What will not do well during recession?

  • Premium supermarkets will be swapped for discount stores.
  • New build and estate agency firms will suffer as property prices stagnate or fall.  More will be spent on DIY and home improvements.
  • Premium food and restaurant chains will suffer as takeaway food chains and local businesses prosper.
  • Long haul, luxury holiday firms and cruises will suffer with short haul holiday firms and countries like Spain benefitting.
  • Subscription based firms such as TV, music and gyms will suffer.
  • ‘On trend’ or luxury drinks firms such as the current trend for artisan gins, whisky and rums will suffer as demand moves back to basic brands, supermarket buys and home consumption.
  • Online shopping will move to essentials only rather then easy, impulse buys.
  • New car demand has already fallen.  Demand for 2nd hand cars and car parts firms for self maintenance will grow.

Impact of Inflation on Company Profits

We have already seen with energy companies and oil/gas companies that increased prices means huge profits.  The same will happen with ever increasing numbers of companies apart of course from the ones that fail.

Increased operating costs = increased costs for consumers = increased revenue = increased profits = increased dividends.

Recent research by the Investment Association (IA) found that since 1900 and over 10 year annualised average growth periods that dividends have outperformed inflation by a staggering 73%.

In times of recession and inflation, we repeat stock markets will recover and over a longer-term investment plan: Think Blue Chip Stocks and Equity Income Investment Funds.

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