#107 – Markets in Motion: Dividends, Inflation, and Retirement Planning

Jeff Lloyd [00:00:05]:
It’s good to be back.

Wes Moss [00:00:06]:
We have this past week The S&P 500 hit 7,000. We saw the Fed pause. They made a decision to do nothing. They did not do anything. They just made a decision to do nothing. Held interest rates right where they have been now for a little while. No, no cuts expected anytime soon. Maybe towards the latter part of the year.

Wes Moss [00:00:28]:
It’s the middle of earnings season. We’re going to talk dividends today. And of course, we have to mention at least Southwest Airlines the end of an era when it comes to unassigned seating. I don’t know. Clark Howard is excited about that. I haven’t talked to him about it or not, but when was the last.

Jeff Lloyd [00:00:45]:
Time you were on a Southwest flight? It’s been a minute for me, but I remember it was like 24 hours before your flight took off. You could check in and then you’d get your, your seating assignment. Not assignment, but you’d get you’d be an A, B or C. Yeah.

Wes Moss [00:01:00]:
Last time it was in Texas going somewhere west and I was actually missed my flight connecting and then had to go, I remember correctly, I had to go to Love Airport. And that is like a. It’s all it was mostly Southwest. So that was the last time I did. It’s been a couple of years, but end of an era. And they obviously are looking around at their counterparts and their peers and saying with $12 billion of seat assignment fees for these other airlines and saying, hmm, maybe it’s time, maybe it’s time to start collecting some fees. The bigger story this week that I know that where I’ve gotten a bunch of questions I know you have to Jeff Lloyd is that and here’s just a headline from I think midweek dollar has its worst day since April after Trump says he’s not concerned with the recent slide. And we saw one of the biggest spikes if you looked at other currencies, Swiss Franc is in a as an example, huge spike in a given day.

Wes Moss [00:02:00]:
We’ve seen seen the price of gold surge over the past year and already year to date. And in this very young year. Price of silver we know is incredible over the past year and a lot of this has happened just in the last six months. Silver is up 270%. Gold up 97%. The value of the US dollar and we measure that by DXY, which is the measures what the US currency does relative to six other major currencies. So in order to understand when you’re looking at the dollar Index, it’s a basket weighted against the euro, the yen, the British pound, Canadian dollar, Swedish krona and chf, which is the Swiss frank most heavily weighted to the euro in the Japanese yen. So that’s a headline that is on the surface sounds bad and it sounds scary.

Wes Moss [00:02:54]:
The the value of the US dollar is down. Whoa, whoa, whoa, whoa, whoa. What does that mean? Everything we do is in dollars. We’re your 401k, it’s in dollars. You’re you go to the grocery store, it’s in dollars. Your Social Security check comes in in dollars. So we live in a world of dollars. So just out of the right out of the gate, you think, wait a minute, it’s fallen back to where it was in 2022.

Wes Moss [00:03:16]:
How is that not a bad thing? And then the administration comes out and says, I think it’s fine. No, this is a good thing. And clearly investors are looking for a hedge. Now these are, remember, this is not just people in the United States but around the world. So that you’ve seen big flows. And that’s why I would be very, very careful jumping in and running to the very fast moving train that is a commodity trade like silver, where when you get an influx of dollars, it can, it obviously can have an outsized impact on the price of some of these commodities. So just be careful about running and jumping onto what these trades that have gotten very, very hot lately. But the dollar, as far as it moving, you really got to get some context around this.

Wes Moss [00:04:08]:
And, and if you go back and look and see where the dollar has traded again, I’m looking at DXY here. So it’s a dollar relative to the other major currencies around the six major other currencies. It’s really been in a very similar range since 2022 and has only recently dropped back to 2019 levels. Is really we hit 2022, but there’s a sharp change between 2019 and 2022. So we’re getting back closer to that range where we lived in the call it 2015 as I’m looking at a chart here to right before COVID And today the US dollars or DXY is trading, let’s call it 96. That’s about where it was through that entire period of time, 2015 through before COVID And that was not a bad period of time economically. It wasn’t a bad period of time for the stock market. We also have to remember that S&P 500 companies get 40% of their revenue 45.

Wes Moss [00:05:09]:
Some are more than 50% of the revenue from overseas. So what happens? US dollar gets a little weaker by 2, 3, 4, 5%. It just makes the same product here, 3, 4, 5% cheaper if somebody outside of the United States is buying it in their currency. So there are some actual positives with a slightly weaker dollar. So even though the headline sounds scary dollar plunges to the lowest level since X. It doesn’t mean that our currency is falling apart by any means. Particularly if you go back and look over the course of history again. From 2015 all the way through 2020, the dollar was at 94, 95 dropped down to even to the 90 level.

Wes Moss [00:05:52]:
And it’s not as though that spelled a terrible economy or a terrible stock market at all. So I’m not saying that it’s not something we need to watch is really dramatic moves could start to freak markets out a little bit. But the dollar slowly and measurably fell about 8% last year. And we had a very strong stock market here in the United States, even stronger outside of the United States. But it wasn’t a bad thing at all for the US market. So before we start worrying about do I need to go into something else that’s against the dollar and jump into gold and jump into silver and jump into Swiss franc. A 5% up or down move in the dollar. We live in dollars, we get paid in dollars, we spend in dollars.

Wes Moss [00:06:39]:
You will not even notice it as an American living in a dollar aquarium, if you will. So that is my take on. I know a story that has made people very nervous over this past week.

Jeff Lloyd [00:06:51]:
Or so and you start to get a lot more questions because you are seeing it in the headlines, not just with a weakening or like the article you just mentioned, the plunging dollar. It’s a good exercise to kind of zoom out and see what that really means.

Wes Moss [00:07:05]:
Now the next piece of the equation of why I’m not It doesn’t concern me in a major way at all to have a slightly weaker dollar. Is that the backdrop of the US Economy? And the Federal Reserve tried. They didn’t say a whole lot this past week at their meeting when they left rates unch, it was one of the shorter, more curt meetings if you will, from our Fed chief Jerome Powell. But if you look at the totality of the data and we go through chime briefly, which is consumer spending that’s up about 5% over the past year, housing grinding sideways, which is a good thing. We have had a big rise in home prices over the past five years that has fallen to more like the Flat line. So that’s a good thing, I think. Interest rates lower today than they were last year. Mortgage rates down closer to 6%.

Wes Moss [00:07:58]:
So that’s a help. But the Fed is, doesn’t seem like they’re in a rush to make rates a whole lot lower at this point. But it’s because inflation is in a Goldilocks zone. It’s in the sub 3% zone. It’s still high twos, but that’s a good place for inflation to be. And you’ve brought this up on the show now a couple of weeks in a row. Jeff Lloyd, that even though the fed target is 2% for inflation, we’ve almost never had a 2% or lower inflation environment. So it’s been very normal to be above 2%, which is right where we are today.

Wes Moss [00:08:33]:
Manufacturing a little bit soft. So the ISM manufacturing index is basically, if it’s above 50, we’re expanding below 50, it’s just slightly below that 50% mark. So it’s, it is, I would say, neutral. But employment, for all the headlines we saw, and we saw an Amazon headline this week, they’re laying off 16,000 people. A lot of those headlines are from over hiring during the pandemic and companies over hired a little bit and they’re correcting that. But the unemployment rate is still in the mid to low 4% range, which is historically really strong. And then what matters potentially even more when it comes to you as an investor in your 401k is earnings. And we continue to see a strong earnings season.

Wes Moss [00:09:19]:
And depending on which Wall street firm you’re looking at, that aggregates earnings data, we could see another 12 to 14% earnings growth in 2026, which is a, which is, is very, very strong. A 7 or 8% earnings year is a really good year. We could see 12, 13, 14% in 2026. So earnings, which is the, the foundation of equity markets, continues to be very strong. So if you had to grade this economy, a lot of the parts are B, there’s some B minuses, there’s some A minuses. I would say in total there’s some A’s. So I would, in totality this is still a B plus, A minus economy, which is, is a great place to be. We don’t, we don’t want to see economy, we don’t want an A plus economy because I’m running too hot like it in that, the range where we are right now and it’s really tough to look at the economic, we call this the economic shock and all of 2026, really hard to see the economy not have a two and a half to potentially 4% GDP rate, which is really fast for an economy our size because of all the stimulus that’s out there.

Wes Moss [00:10:29]:
And it just started this past week, people are starting to get tax refunds. 150 billion in incremental tax refunds, 200 billion in business tax incentives because of the new capital expenditure depreciation that was signed into law last year. Huge monetary support that the Fed is not draining liquidity in the system. They’re putting liquidity out into the system. We have regulatory relief. And you put all that together, you end up with stimulus for 2026 that is in the order of close to a trillion dollars. Very tough to get. A bad economy with a backdrop and an extra tailwind like we are seeing the numbers behind dividend durability.

Wes Moss [00:11:17]:
Jeff, you found a great source from the dividend growth investor that shows different financial categories, discretionary, consumer staples, energy, and the length of time companies have increased their dividend. Or is this just. Is this just paid a dividend or.

Jeff Lloyd [00:11:35]:
Increase increased how many years they’ve increased their dividend.

Wes Moss [00:11:39]:
So Pepsi 53 years, Procter Gamble 69 years. J.M. smucker, 28 years of delivering peanut butter and jelly, I believe Walmart, 52 years. Over a half a century. But this is a very long list of what are called the dividend aristocrats. We’re going to talk about dividend durability coming up here. But before we get to that, the. I want to make sure so you can make reservations.

Wes Moss [00:12:09]:
This is. My dad was here last week and a lot of the sessions were sold out. So that’ll be about this time next year. And you may want to get ahead of the curve so that you can get into some of these. Some of these breakout sessions. But he was just in Elko, Nevada, which is a true cowboy town. It’s a talk about the old West. The reason I bring it up is it’s a very unique core pursuit that my dad is the only one I know.

Wes Moss [00:12:38]:
Now there’s a whole bunch of people that also do this. But it was to the National Cowboy Poetry Festival in Elko, Colorado. And cowboy poetry is really a form of country music, what it is. And if you look at the contingency, it looks a lot like you’re at a country western, a big country western convention, gathering, bar, whatever you want to do it, you get up on stage, you and you. They have some famous cowboy poets, slash artists, songwriters. But the. I hadn’t looked at this. But producer Marissa brought this up, that some of the sessions and these were all sold out.

Wes Moss [00:13:17]:
That’s why I want to bring it up. So you have a whole year in case you want to go to Elko, Nevada, by the way, I think it’s on the corner of Railroad street and Cowboy Street. It’s just like the.

Jeff Lloyd [00:13:28]:
That is not a joke.

Wes Moss [00:13:29]:
Literally where it is most authentic place in the country when it comes to west country western cowboy life. Session number one, sold out. Build your own hat. Session number two, sold out. Rawhide braiding. Are you familiar with rawhide?

Jeff Lloyd [00:13:46]:
I’m not, but I would love to build.

Wes Moss [00:13:47]:
You don’t even know what it is.

Jeff Lloyd [00:13:48]:
I don’t.

Wes Moss [00:13:49]:
You don’t even know what it is.

Jeff Lloyd [00:13:49]:
I don’t see.

Wes Moss [00:13:50]:
I grew up with rawhide because it’s essentially a it’s a version of leather that gets super, super tight that you could almost use it as a fastener. But it comes from an animal. Comes from. It’s kind of like it’s a stronger version of leather, if you will. Spit. Cooking the perfect poor day at the ranch and cooking Sunday dinner. All of those sold out. Very cool.

Wes Moss [00:14:21]:
To see the National My dad go to national poetry gathering in Elko, Nevada this same time next year, 2027. So don’t miss it.

Jeff Lloyd [00:14:31]:
And they’ve been doing that for 41 straight years.

Wes Moss [00:14:34]:
41St annual getting bigger and Bigger. More Money matters straight ahead. Here’s your retirement to do list. Analyze market history, track interest rates, understand AI’s impact, watch midterm election volatility, plan out income, manage tax rates, evaluate health care and time Social Security correctly. Sound exhausting? Well, you could just work with capital investment advisors and let our team handle all of it for you. If you’re nearing retirement, don’t manage all these decisions alone. Visit yourwealth.com that’s y o u r wealth.com price changes from January 2000 through the end of last year. If you’ve been scrolling, maybe it’s just because I always look at economic everything.

Wes Moss [00:15:25]:
I see this chart pop up every couple months. But it is a really fascinating chart where you have the this is over the past 25 years average inflation or the overall inflation over that period of time is 92.6%. And then we see a whole list of major items on that we spend money on. Some are way above that and some are way below it. And it’s always kind of fascinating to see what that list looks like. So. Jeff Lloyd if a dollar was worth a dollar in the in the year 2000, inflation’s 92.6%. What’s a dollar worth today relative to them?

Jeff Lloyd [00:16:03]:
52 cents.

Wes Moss [00:16:04]:
So you, your dollar is cut in half.

Jeff Lloyd [00:16:06]:
Your dollar is almost cut in half over the last 25 years in terms of purchasing power because of inflation.

Wes Moss [00:16:13]:
Well, the good news is that that has been no problem if you wanted to buy TVs, toys, software or cell phones because you’ve seen a 98% decline in the price of television, 74% decline in toys. Cell phones down 45%. And there’s a few flatliners. Clothing, zero. Inflation in clothing, which is interesting over the past 25 years. The price of clothing, inflation only 1.5%. New cars only 25%.

Jeff Lloyd [00:16:49]:
And I made this joke last week, but we’re in the market for a new car because a deer hit my wife’s car. That 25% seems a little low.

Wes Moss [00:16:58]:
It does. I know. Then what has been in line with that quote? Normal, what we’ve seen over that period of time. So overall inflation has been 93%. Food and beverages a little bit above that 105. Housing 111. But I think what hits this is really what hits Americans is that medical care services up 147%. Childcare nursery, which is I think is massively important and it hits families really, really hard.

Wes Moss [00:17:31]:
Childcare, nursery school up 100, almost 60% over that period of time. College textbooks of 180%.

Jeff Lloyd [00:17:38]:
Jeff Lloyd do they even have textbooks anymore?

Wes Moss [00:17:40]:
It must be because they don’t even use them anymore. And the, the ones, in the few instances that you do use them, they’ve had to jack up the price because it’s just, I, I haven’t seen a book in a very long time now.

Jeff Lloyd [00:17:51]:
My, my kids aren’t in college yet. Hopefully they get there, but I haven’t seen any textbooks in their backpacks. They’re in junior high and they’re in middle school and high school. I don’t see textbooks in their backpacks.

Wes Moss [00:18:04]:
Speaking of second highest category on my chart here. College tuition and fees up 196% over that period of time. And then another health care category that is brutally now more expensive, up 281%. Hospital services, I believe it.

Jeff Lloyd [00:18:23]:
Medical care has gotten really expensive.

Wes Moss [00:18:26]:
So it’s three times more expensive to, to take care of yourself if you’ve got a medical issue which matters. But it’s 98% cheaper, inflation adjusted to get a flat screen TV. I don’t know, I don’t like, I don’t like that equation. But the good news is that we have a way that one of the fundamental foundational themes of what we do here on Money Matters is to, and this is for almost every investor, is to help protect your purchasing power. We don’t know over the next 25 years what category will be down or what category will be up. But we do know inflation will persist and we do know that your dollars will continue to wilt. So over another 25 years, that dollar that’s in your wallet today, if it stays uninvested, sitting in a wallet, under a mattress, maybe in a pillowcase somewhere in a safe, it will probably be worth more like 50 cents in the future. Only way to protect yourself against that and higher costs in our lives is to be able to have something that inflates along with inflation.

Wes Moss [00:19:25]:
Arguably, what better would be to inflate at a pace higher than inflation? And enter the story of dividends. Jeff Lloyd, which have grown faster than the rate of inflation in almost every period you look at. I know we have a chart that goes back to 1890. We have a chart that goes back to 1950. We have a chart that goes Back to 19 or the year 20, 20, 25 years. And almost any period of time you look at, and you look at the s and P500 dividend year by year, by year, over long stretches of time, it grows at about, call it 6% a year, 6 and a half percent a year, while inflation has grown at about 3% over most of those periods of time. So since 1960. So we’ll take, we’ve got graphs going back 25, 40, 50, 100 years.

Wes Moss [00:20:20]:
But since 1960, dividends paid by the S&P 500 up at about 150% of the rate of inflation. So that means the dividend growth has outpaced cpi, Consumer Price Index by about one and a half times over over long periods of time. And dividends are not extra, they’re foundational. If you have a stock that goes up by 10% and it pays you 3%, then you have a total return of 13%. You’ve collected appreciation and cash in your pocket. Or you may have chosen to reinvest that dividend so you have more shares. So you’d still again be up that 13% roughly, and depending on when the dividend comes in, et cetera. So it’s not a side benefit, it’s not a bonus.

Wes Moss [00:21:03]:
In fact, it’s been over time. Now it’s lower today because the dividend on the, on the s and P500 today is only about 1.1%. But over that same course of time, 1960 till today, 37%, 37%, over a third of the total return of the s and P500 is because of the dividend. That’s the cash flow that comes from those companies gets reinvested or you spend it. So it’s done a lot of the heavy lifting over the years and it’s really just, I think, impossible to ignore. If you put some numbers to it, 1975, S&P paid out just shy of four bucks in aggregate per share. Today that number is roughly 80. So we’ve gone from four to 80.

Wes Moss [00:21:50]:
That’s a 20 fold increase over that period of time. Now, what happened during market downturn? So stock market 1973, 74, what happened, fell 48%. What happened to dividends? And by the way, Corporate earnings dropped 18% during that period of time too. Dividends didn’t decline at all. They stayed totally flat, totally steady. 2000 to 2002, another very tough time for the market. Stock prices fell 49%, earnings fell 30%, dividends fell 6%. So there’s some real durability around dividends.

Wes Moss [00:22:29]:
And once a company starts to our previous conversation of the dividend aristocrat list, there are dozens and, and dozens of companies on this list that have paid anywhere from, I think the lowest on this list is that I could find 28 years going all the way to almost 70. Dover Corporation, 70 years of raising the dividend. Companies, once they start, it’s almost. It gives a company a dividend, paying dividend virtual. It’s a really big deal for a company to do it. They’re literally sending money out to their shareholders. They have a $200 million sitting there in cash and the dividend may be $50 million. It’s a lot of money that is leaving the pocket of the company.

Wes Moss [00:23:15]:
You could argue, well, the company could just reinvest. That 50 billion may build another plan and grow even faster. Instead, companies are choosing to pay that out to shareholders. Now, a lot of that does get reinvested into those same stocks, but it also provides a disciplined structure. The board votes on it. They have to vote to increase it. It’s a really big deal if they have to cut it. So it gives a company some guardrails on performance.

Wes Moss [00:23:46]:
It says, well, we’ve got to deliver. We’ve got to deliver so we can grow our earnings, so we can grow our cash flow, so we can grow our dividend. It’s almost a leadership framework for corporations and Once they’re in that tailwind of doing so, they do not want to get out of that dividend jet stream, if you will. So the dividend math works over time if you give it enough time. Historically, companies pay out anywhere from really it’s their choice. So you could have a company that only pays out 2% of their earnings or you have a company that pays out 50% of their earnings. Change historically for dividend companies is call it 30 to 45%. The nice thing about dividend stability, and we’ve seen this even through market declines, is that the cash flow part of it is very reliable.

Wes Moss [00:24:38]:
So that you have a year when we have bad years in markets and you see equity prices down 10, 15, 20%. It doesn’t mean that your cash flow changes. And I think that is very helpful psychologically. Investors for investors say well my, my income really hasn’t changed. So it gives me time to ride out the recovery of equity markets. And that in itself is really powerful. I did another chart here to see how we’ve done not just since 1960, but going back to 1990, a different time frame. Dividends versus inflation.

Wes Moss [00:25:13]:
Dividends back in 1990 were about 12 bucks for the S&P 500. Again today, just shy of 80. That’s a 558% return or six over six and a half acts over six and a half times, dividends have risen during that same period of time. Inflation went from 130 to 326. That’s 151% or two and a half times. Do the math. Dividends rose at 2.6 times faster than inflation, or about 160% of the pace. And this is something that it’s not a promise, but it is a very, very strong message from a company that says hey, we want to continue to do.

Wes Moss [00:25:55]:
They fight to protect those dividends. Investors come to expect it. Cutting a dividend, it damages trust of a company, damages credibility. Dividend consistency shows an investor and the investment community that there’s financial strength there. And again, I think what gets overlooked is the discipline that has to be there in order for a company to do it. So you put that all together. It helps companies manage to that. So they may have to cut costs in order to do.

Wes Moss [00:26:28]:
They maybe have to delay some plans in order to continue the dividend. They may have to pause share buybacks. They may even sometimes have to dip into reserves because the dividends you get paid out, that’s dividends don’t know. As Noel Miller, one of my favorite stock market Investment authors said dividends don’t lie. Earnings can get, have one time expenses. They can, there’s all sorts of taxes and one time expenses and there’s a lot of accounting that goes into what the earnings number is. A dividend is just an actual cash event in your account. You need to choose to let it go into the money market and spend it or, or reinvest.

Wes Moss [00:27:09]:
But dividends do not lie and they have persisted through multiple wars, great inflation, energy crises, market crashes, change in demographics, you name it. There is a ton of durability when companies are paying out dividends and it’s a durability that I really, I think it’s an important part of investing that it helps me psychologically too as an investor. Now let’s talk about multi asset class income investing and if you would had a, let’s call it a balanced half stock s and P, 540%, fixed income bonds, the aggregate bond index and then 10% in what we would consider alternative income which is a mix of REITs and pipeline companies, preferreds and closed end funds. Put just 10%. So that’s a balance portfolio and you start with a million. This is back in 2016 and withdrawal using the 4% rule. Start with $40,000 increase for inflation every year. What would you be left with at the end of last year? Well first of all your 40 is now, now you’re withdrawing, withdrawing 53,440.

Wes Moss [00:28:16]:
So it’s gone up because of inflation and that’s how much you’ve taken out. You’ve taken out 40, then 40,800, then 41, 6, 98, etc. And how much are you left with? You are still left with $1.4 million. And over that, at the end of that 10 year period of time and.

Jeff Lloyd [00:28:35]:
Over that 10 year time frame, you have taken out almost half a million dollars. You’ve taken out withdrawn real income $455,332.

Wes Moss [00:28:45]:
Start with a million, take out 455, left with $1,046,000. So that is one way to have a balanced portfolio. Help allow you to withdraw that starting 4% number. And it’s one way to do it. It’s not the only way in the world to do it. It’s a way that I think that can give you balance and comfort and know that you’ve got income coming from a lot of different sources. So that is income investing in practice and how that is done over the last decade or so that worked for you, Jeff?

Jeff Lloyd [00:29:23]:
Yeah, they call it the 4% rule. We like to refer to it as the 4% rule of thumb. It’s not some stringent thing you have to stick with each year. It’s not mandatory 4% each year. It’s more of a rule of thumb.

Wes Moss [00:29:37]:
It’s amazing how how heated that debate is. It’s one of the great debates in financial advice. Some people say 2.83, some people pay say 8. We’re right smack dab in the middle, which usually ends up being the right. We don’t. It’s I think it’s a reasonable way to look at it. So we’re going to wrap there. If you would like to learn about any of what we just talked about throughout this past hour, it’s easy to find Jeff Lloyd, easy to find me, easy to do so@your wealth.com that’s y o u r wealth.com we’d love to hear from you.

Wes Moss [00:30:15]:
Have a wonderful rest of your day.

Mallory Boggs (Disclaimer) [00:30:23]:
This is provided as a resource for informational purposes and is not to be viewed as investment advice or recommendations. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. The mention of any company is provided to you for informational purposes and as an example only, and is not to be considered investment advice or recommendation or an endorsement of any particular company. Performance is not indicative of future results. Investing involves risk, including possible loss of principal. There is no guarantee offered that investment, return, yield or performance will be achieved. The information provided is strictly an opinion and for informational purposes only, and it is not known whether the strategies will be successful. There are many aspects and criteria that must be examined and considered before investing.

Mallory Boggs (Disclaimer) [00:31:11]:
This information is not intended to, and should not form a primary basis for any investment decision that you may make. Always consult your own legal tax or investment advisor before making any investment, tax, estate or financial planning considerations or decisions. Investment decisions should not be made solely based on information contained herein.