The financial crisis and the very weak global economy has created lower prices or deflation in many asset classes. It's also created very low interest rates thanks to central bankers who seem to be willing to do anything to pump up the economy. With the European debt crisis growing in size, it looks like those leaders will follow the path taken by the Federal Reserve which was to lower rates, and more or less, print money. Historically, debtor nations have printed money in order to climb their way out of what some may call insolvency. Eventually, this should all catch up with us in the future. Bill Fleckenstein is a well-known financial expert who recently summed up the inflation outlook:
Some businesses may be willing to absorb a portion of the price hikes for a little while, but that won't last long. In fact, we're starting to see this in far too many areas. A reader of my daily Market Rap column on my Web site (subscription required) -- a longtime businessman in the hardwood industry -- noted that prices have leapt dramatically in the past year. One reason for prices being pushed higher is that so many mills have gone out of business. So, when government money printing (which can spur demand) meets industries that have been hammered, price increases do result.
Read the entire article here.
Based on the currently low rates available in money market accounts and certificates of deposits, many investors are turning to dividend stocks. Forward looking investors should be looking for companies that have high yields and/or pricing power so that price increases can be passed onto consumers once inflation hits. Another hedge is to own oil stocks since hard assets like oil tend to rise and even create inflationary pressures. Here are a number of dividend stocks that have solid yields and a strong chance at beating inflation which is likely to surface over the next 5 years:
ConocoPhillips (NYSE:COP) is one of the largest integrated oil and gas companies. This company is involved in exploration, production, processing, and transportation of various energy products and fuels. This company has extensive oil and gas reserves which will increase in value as energy prices rise. Chances are dividends will also grow with earnings and offer investors a hedge against inflation. This stock is one of the most attractive oil plays due to the solid dividend and the low price to earnings ratio.
Here are some key points for COP:
- Current share price: $71.95
- The 52 week range is $58.65 to $81.80
- Earnings estimates for 2011: $8.58 per share
- Earnings estimates for 2012: $8.34 per share
- Annual dividend: $2.64 per share which yields 3.6%
Johnson & Johnson (NYSE:JNJ) is a global maker of health care and medical products. This company owns many well known brands such as Listerine, Motrin, Band-aid, Reach, Splenda, Tylenol, Lubriderm, Sudafed and many more. These must-have types of products provide steady revenues, even in recessions and well-known brands have strong pricing power to pass on inflation costs. With a solid dividend and balance sheet, a stable product line, and earnings growth, this stock has everything needed for it to be considered a great investment.
- Here are some key points for JNJ:
- Current share price: $64.53
- The 52 week range is $57.50 to $68.05
- Earnings estimates for 2011: $4.97
- Earnings estimates for 2012: $5.24
- Annual dividend: $2.28 per share which yields 3.5%
Exxon (NYSE:XOM) is a major integrated oil company, based in Texas with operations worldwide which include refining, exploration, and more. Exxon stock has provided a few buying opportunities recently due to stock market weakness over debt concerns in Europe. It dropped to about $70 recently, but has since rebounded. I would wait for dips before buying. Exxon is a must-own oil stock for many investors, and oil companies typically do well in times of inflation.
Here are some key points for XOM:
- Current share price: $81.34
- The 52 week range is $67.03 to $88.23
- Earnings estimates for 2011: $8.55 per share
- Earnings estimates for 2012: $8.42 per share
- Annual dividend: about $1.88 per share which yields about 2.3%
Chevron Corporation (NYSE:CVX) is one of the largest integrated oil and gas companies worldwide. Chevron is well diversified in the energy sector generating revenues from many sources, from oil, natural gas, refining, etc. Demand for oil will only rise with a worldwide population increase and even though oil demand may drop in a weak global economy, it is still a must have product. Chevron stock offers a healthy dividend and most importantly a low price to earnings ratio at just about 8 times earnings. There is plenty of earnings power to fund future dividend increases and provide an inflation hedge.
Here are some key points for CVX:
- Current share price: $104.25
- The 52 week range is $85.63 to $110.01
- Earnings estimates for 2011: $13.57 per share
- Earnings estimates for 2012: $12.73 per share
- Annual dividend: $3.42 per share which yields 3.1%
Merck and Company, Inc. (NYSE:MRK) is a global pharmaceutical giant. Pharmaceutical products are in demand even when the economy is weak and this is why investors often seek drug companies as a safe harbor in tough times. Pharmaceutical companies have historically been able to raise prices in times of inflation. I would consider buying Merck shares on any significant weakness.
Here are some key points for MRK:
- Current share price: $35.68
- The 52 week range is $29.47 to $37.65
- Earnings estimates for 2011: $3.75 per share
- Earnings estimates for 2012: $3.83 per share
- Annual dividend: $1.68 per share which yields 4.7%
Pitney Bowes, Inc. (NYSE:PBI) offers mail processing equipment and provides equipment, supplies, software, services, and solutions for mailing. This stock has dropped with the markets and now trades at bargain levels, near the 52 week low. Some are concerned that the demand for this companies products and services will be diminished as email continues to grow, but chances are there is enough demand for both mail and email to prosper. The current rate of inflation is running around 3% now, and this stock pays almost triple that rate.
Here are some key points for PBI:
- Current share price: $18.83
- The 52 week range is $17.33 to $26.36
- Earnings estimates for 2011: $2.25 per share
- Earnings estimates for 2012: $2.16 per share
- Annual dividend: $1.48 per share which yields 7.8%
Chimera Investment Corporation (NYSE:CIM) is a real estate investment trust (REIT) that invests in residential mortgage-backed securities, and both commercial and residential mortgage loans. With a yield of about 20%, and a share price below book value, this looks like a great buying opportunity. Currently, the yield provided by Chimera stock is about 5 times the current rate of inflation and that makes this an excellent inflation hedge.
Here are some key points for CIM:
- Current share price: $2.69
- The 52 week range is $2.38 to $4.36
- Earnings estimates for 2011: 57 cents per share
- Earnings estimates for 2012: 47 cents per share
- Annual dividend: 52 cents per share which yields 19.5%
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.