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3 Rich-Retirement Blue-Chips To Buy In Case Inflation Gets Very High

Aug. 05, 2021 3:23 AM ETCE, ENB, PRU, ENB:CA15 Comments


  • Inflation is at 30-year highs, and many investors fear the impact on their nest eggs if high inflation doesn't prove transitory.
  • Stocks in general are the best inflation hedge in history, but the market is 29% overvalued and expected to deliver just 31% total returns over the next five years.
  • CE is a hyper-growth blue-chip basic materials supplier that has several growth catalysts that are expected to deliver 18.5% CAGR growth and 106% total returns over the next five years.
  • Enbridge is my favorite 7% yielding Ultra SWAN utility, and inflation protection in its contracts protects 98% of its cash flow. Analysts expect ENB to deliver about 120% total returns in the next five years.
  • Prudential yields a very safe 4.5% and analysts expect 10.5% CAGR long-term growth even if interest rates merely return to 2010s levels.
  • This idea was discussed in more depth with members of my private investing community, The Dividend Kings. Learn More »
Money Printing 100 US Dollar Banknotes
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Thanks to the strongest economic growth in nearly 40 years, as well as supply chain disruption and record stimulus, rising inflation is a concern for many investors today.

Using the Fed's favorite inflation metric, core PCE, we're now seeing the highest inflation


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This article was written by

Dividend Sensei profile picture

Dividend Sensei (Adam Galas) is an Army veteran and stock analyst with 20+ years of market experience.

He is a founding author of the investing group The Dividend Kings which focuses on helping investors safeguard and grow their money in all market conditions through the highest-quality dividend investments. Dividend Sensei and the team of analysts (Brad Thomas, Justin Law, Nicholas Ward, Chuck Carnevale, and Sebastian Wolf) help members invest more intelligently in dividend stocks. Features include: 13 model portfolios, buy ideas, company research reports, and a thriving chat community for readers looking to learn how to invest more intelligently in dividend stocks. Learn more.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of ENB, PRU either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

DK owns ENB, and PRU in our portfolios.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (15)

@Dividend Sensei
I appreciate the amount of research you did on the effects of inflation on various types of investments. Great info. Thanks.
@Mick research, thanks for the laugh about the attention span of analysts being akin to that of a goldfish. Very nice!
Veritas1010 profile picture
$ENB for me.

Biggest position.

Thank you for your continued examination.
scottiebumich profile picture
May I ask why you chose Enbridge over Enterprise Products? Assuming you pay 5% state taxes and adding to the 15% Canadian withholding tax you're looking at a real yield of ~5.4% vs 8.1% for Enterprise Products (MLP). That is a 50% higher yields for Enterprise, which has more diversification and a better balance sheet/less leverage? What's your thoughts?

Thanks, Prudential isn't bad, but I wouldn't want to hold a slow growing company that is fairly valued now. A market correction would likely take all stocks down and PRU prudential doesn't have a large enough margin of safety to justify paying full price. Something like FACEBOOK, for example, that is trading near fair value, is a better bet as even in a stock market correction it would only take 1-2 year of earnings growth to move it north again. Prudential could remain as P/E near 6-8 for years.
Dividend Sensei profile picture
@scottiebumich You get the tax credit that neutralizes the tax withholding for the vast majority of investors.

EPD is another great choice, but I'm limited by time in how many companies each company can cover.

ENB also has a 3.3% faster growth consensus meaning that its long-term consensus total return potential is higher.

I own both, though a lot more ENB.

MMP is my 2nd biggest holding because I've been buying it since October 2020 when it was upgraded back to blue-chip quality (actually Super SWAN quality, a higher caliber of blue-chip) and became eligible for buying.

I personally don't buy anything that's not blue-chip quality.

The only exceptions are OGN and VTRS, which analysts expect to eventually become blue-chip quality and I received via MRK and PFE spin-offs.

If you only buy blue-chips, then even if the fundamentals take a hit (like with SPG) then you're still left owning an average quality company.

If you buy average quality to start and the fundamental deteriorate you might find yourself owning one of the next bankrupt companies headed to zero.
Dividend Ambassador profile picture
I certainly agree on PRU. I hope we are both right as I now a lot of PRU shares.
Mick Research profile picture
About CE, another author reached a different conclusion



Analyst accuracy isn't something you can rely on that fully here, with around 25% failure to forecast results with a 10% margin of error. Even if the company improves here, it doesn't change that there's some uncertainty to forecasts here.


Celanese is a typical example of a company where analysts have the attention span of a goldfish. Targets vary with time, climbing nearly 70-80% in less than a year only because the pandemic and the very momentary impact (in the long term) such an occurrence has had.

Therefore, I wouldn't pay more than a 12.5X P/E, which comes to around $140/share, and here I'm being extremely optimistic."

The current price is ~$153.
Dividend Sensei profile picture
@Mick Research

Yes, growth outlooks change as the fundamentals in the industry and economy change.

For cyclical industries, they can change a lot.

That's why we use not only historical margin-of-error-adjusted consensus ranges, but we also adjust those ranges based on historical growth rates and the secular trends the company is facing now.

To paraphrase Churchill, "investing based on the expert consensus opinion is the worst possible strategy. Except for all the others."

In the case of CE, the historical fair value PE is 11.5 to 12.5.

So if you pay 12.5X or less, then you're likely to do well over time, unless the wheels completely fall off the company.
@Mick Research People emphasize PE too much. It's a useless metric for cyclicals. Relax and BUY CE for the long run...
BM Cashflow Detective profile picture
"The natural tendency of the state is inflation. This statement will shock those accustomed to viewing the state as a committee of the whole nation ardently dispensing the general welfare, but I think it nonetheless true."
- Murray Rothbard

"The natural tendency of the value investor is to be successful in wealth-building regardless of inflation. This statement will shock those accustomed to viewing the stock market as a bear market crushing machine that is busily destroying the invested wealth of most investors, but I think it nonetheless true."
- BM Cashflow Detective

That's why I made some smart money purchases some time ago in $CE and $PRU.

The whole stock market basically just depends on,

whether there are more stocks out there than idiots

or more idiots than stocks.

After that, it's high time not to be an idiot anymore.
Enjoyed the article Dividend Sensei
Long PRU
Income4ever aka Cyclenut profile picture
Good read,

Add EPD to the short list
Own PRU and ENB and love your analysis on both.
Hi Dividend Sensei, what do you think about Unum? At these prices looks dirty cheap. Am i missing anything?
Dividend Sensei profile picture

UNM is a lower quality insurance company than PRU or MFC, which is why I haven't been buying it in the pandemic.

PRU is a 10/12 SWAN, MFC also a 10/12 SWAN.

UNM is an 8/12 above-average quality insurance company.

The growth consensus is 5.8%, which means buying today you can expect about 10.5% CAGR long-term returns after valuation changes cancel out over decades.

That's assuming it grows as expected.

If you bought it back in 2020 when the yield was over 7%, you're fine holding it and earning 13+% CAGR over time.

Even if it turns out that all these insurance companies grow slower than expected (say because yields stay permanently lower than over the last decade) buybacks can likely ensure that we all make at least high single-digit returns.
Very well written with solid research.
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Related Stocks

SymbolLast Price% Chg
Celanese Corporation
Enbridge Inc.
Prudential Financial, Inc.
Enbridge Inc.

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