Inflation is low, just 0.8% for the last 12 months.

No one is thinking about inflation right now.

But it exists. Although gas prices have come down and the rise in food, healthcare and education prices have decelerated, inflation is still around.

[ad#Google Adsense 336×280-IA]And I suspect it’s about to get worse.

A Scary Proposition

Wal-Mart’s (NYSE: WMT) recent statement that it is going to boost wages is the first sign of meaningful inflation.

The company must increase its wages to compete for workers.

As a result, other companies may hike their pay too.

Typically, when wages and income rise, so do prices, as there is more demand for goods and services.

I’m not saying we’re about to enter the “Jimmy Carter Era Part II.” Not by a long shot. But even if inflation rises to 2.4% – a full percentage point below the historical average – a person will need 12.5% more money in five years for the same standard of living as today. In 10 years, they’ll need nearly 27% more cash.

And if inflation rises to just the 100-year historical average of 3.4%, a person will need 18% and 40% more money in five and 10 years, respectively.

That’s a scary proposition, especially if you’re no longer working.

Fortunately, there’s a solution.

Perpetual Dividend Raisers

Perpetual Dividend Raisers are stocks that raise their dividends every year. Some companies have been giving shareholders annual divided raises for decades.

For example, little-known machinery company Nordson (Nasdaq: NDSN) has raised its dividend every year since the Kennedy Administration.

However, Nordson has a very low dividend yield, so it doesn’t generate the kind of income most investors are looking for.

The key is to find a stock with a healthy dividend yield that raises the dividend every year by a significant amount.

A blue chip company like Coca-Cola (NYSE: KO) currently pays a dividend yield of nearly 3% and has raised the dividend each year for 52 years. Over the past 10 years, the average dividend raise has been 9.3%.

Think about that for a minute. If you’re an investor who lives off of the dividends that your stocks pay and you’ve owned Coca-Cola for the past decade, each year you got a 9% raise in your income.

I know an awful lot of employed people who would love a 9% annual pay increase.

In a low-inflation environment like we’ve had, those increases can go far toward boosting an investor’s standard of living.

But when we have higher inflation, it’s even more critical to get those annual dividend hikes. If inflation rises to the historical average of 3.4%, a 9% increase in income even after taxes will still boost your buying power. When I think about investing, it’s not all about accumulating a big pile of money to buy things with. It’s about accumulating a big pile of money that will generate income so that we don’t have to touch the pile of money in the first place.

Getting a 9% or similar increase in income would go a long way in keeping you from having to touch the original investment capital.

And the good news is that these types of stocks historically outperform the markets. Over the past 15 years, stocks with 25-year histories of annual dividend raises (Dividend Aristocrats) have outperformed the market by 50 percentage points over 10 years.

Investing in Perpetual Dividend Raisers is the best strategy that I know of to increase your income every year – and, more importantly, your buying power.

— Marc Lichtenfield

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Source: Wealthy Retirement