Weekly Thoughts 5 December 2021

Yes, today is not Friday. But Friday broke down, so Sunday will have to do!

So often the inspiration for the content of what I write in these newsletters comes to me at a completely random moment as a story in my head and I always wish I could press a replay button afterwards to be able to write it down as it first came out, because usually the first inspiration is the best version and I never feel I get it quite so good on the regurgitated episode. These words below are no different by their origin.

Last week I wrote about Coronation Fund Managers mentioning an increase in inflation. Then I read articles about inflation the next day in the Saturday press. So here’s my thought for you to follow…

If you have income coming through from dividends of shares that you directly own or might own via an overseas share portfolio I might have put you into, or through unit trust funds such as Marriott’s Dividend Growth Fund (because Unit Trust Funds are actually large shareholders of many companies and then you and I own some of that unit trust fund), then the dividend income from these investments will slowly increase in line with inflation and therefore be of help to you in the end.

What happens with inflation, is that when the widget that you’re buying in the shop goes up in price, like baby powder…. to take an example, what has just happened is that Johnson & Johnson has put the price of their baby powder up, so Pick ‘n Pay put the price up – because they make a mark-up. You and I pay more for it, Pick ‘n Pay and J&J both make more money and then usually both of them will slowly begin to each pay a higher dividend to each of their shareholders, which comes through to us via those investments or unit trust funds I’m talking about. So things go up in price, but if you own some of those things that we all buy, through your investments, you get some of the higher profits in the end, through the increased dividend income. The value of the investment might not actually go up during this inflationary time, but the income can go up. Remember how often I say to some of you, that the short term value of your investment doesn’t matter, especially if you are using the income or building the income for the future.

I am sending this to you from a Mugg & Bean restaurant. If I owned this outlet I was sitting in, when inflation comes, I simply pass the higher cost of living on to you when you walk in. I make you pay more for the cup of coffee. But if you owned some of the shares of Famous Brands, who owns Mugg & Bean, you will benefit in time from a higher dividend income, because Famous Brands will (should – if they want investors to stay with them) pay a higher dividend in due course.

So we don’t have to fear everything about inflation if we own some of the businesses we shop at. But it can take time to see the difference for yourself….

I hope some of that made sense. The replay didn’t work so well.