Do stocks provide a hedge against inflation?

 

Yes, some stocks can provide some measure of protection against inflation.

Companies that have pricing power can increase their prices as inflations rises. (Monopolies and oligopolies have control over their prices as they have no competition) This may increase their profit margins which in turn may boost their stock prices.

Companies that pay dividends may increase their dividends due to inflation.  This income can help shareholders offset the effects of inflation.

Finally, as companies earn more (due to higher prices for goods and services) their revenues may increase.  This is especially true for industries that are less sensitive to inflation as well as for companies that own or produce hard assets, such as natural resources or infrastructure who may benefit from rising prices. Increases in revenues tend to drive up the value of the stock.

Some stocks, such as those in the energy, materials, or utilities sectors, may be more sensitive to inflation than others.

Investors should carefully consider the characteristics of individual stocks and their exposure to inflation before investing and consider seeking guidance from one of our investment professionals at Sara-Bay Financial.

 

 

 

The information in this article is a compilation pulled from a variety of sources.  The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

5-12-2023

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