Must-Know Criteria For Picking Inflation Proof, High Dividend Stocks

by: Cliff Wachtel
A few thoughts on Henrique Simoes' recent article Faber and Schiff: Inflation Inevitable (So Here's What to Do) on Seeking Alpha.

Yes, inflation is on the way. Perhaps, as Nouriel Roubini argues, it will take some time as the deflationary pressures of a still worsening economy and failing banking system work themselves out, so we may even see some deflation first. However, the Fed can't print the equivalent of the U.S. GDP's worth of new dollar bills (about $13 trillion) and not have serious inflation (unless we get government imposed price and wage controls?) at some point. I won’t even begin to discuss what happens if the demand for U.S. Treasuries dries up.

So assuming inflation is coming, what do you actually do? Simoes proposes some ideas. Here’s another. As one strategy, consider the hard asset based high dividend stocks I present in my current series The High Dividend Stock Investor's Collapsing Dollar Survival Guide, Part 1 -- Seeking Alpha
The Goals of this Strategy:
  • Steady high yields, most of the recommendations’ dividends are very safe, some less so (but with more upside potential). Thus you are well paid while you wait for the market to recover (versus negative real returns in cash).
  • Earnings and yields can keep pace with USD inflation, thus providing at least some protection for your principal and income.
  • Currency diversification and thus reduction of risk from declines in the USD relative to other currencies.
The Key Criteria For High Dividend Stock Selections:
  • Strong businesses that continue to maintain or grow their revenues, incomes and cash flows even in this environment.
  • Owning or controlling vital hard assets or commodities that hold or increase value in times of inflation AND/OR dominant position in a market niche with steady and growing demand that allows these firms to raise prices when needed to keep pace with inflation.
  • Earnings and distributions in a non-USD currency, ideally one that is tied to hard assets and commodities.
  • High dividend yields about 7% or higher: Regardless of price movements, you continue to get steady junk bond like yields with far greater safety and better price appreciation potential (as long as they meet the above criteria).
Recent suggestions include:
Atlantic Power Corporation (OTC:ATPWF)
Energy Savings Income (OTC:ESIUF)
Enerplus Resources Fund Trust (NYSE:ERF)
Enterprise Products Partners (NYSE:EPD)
Kinder Morgan Energy Partners (NYSE:KMP)
TEPPCO Partners (TPP)
Provident Energy Trust (PVX)
Veolia Environment (VE)
Verizon (NYSE:VZ)
Vermilion Energy Trust (VETMF.PK)
DISCLOSURE: The author has positions in most of the recommendations