Warren Buffett believes that an onslaught of inflation will be one of the unwelcome aftereffects of the government's massive economic rescue attempts. And who could blame him? With over $13 trillion thrown at these problems, much of it either directly printed or loaned out for next to nothing, there are a lot of newly minted dollars floating around out there.
In saying so, Buffett was tipping his hat to the late, great University of Chicago economist Milton Friedman, who famously wrote that "Inflation is always and everywhere a monetary phenomenon, in the sense that it cannot occur without a more rapid increase in the quantity of money than in output."
What's wrong with that?
The big danger with inflation is that it erodes the value of both your savings and your paycheck. Inflation means that you have to earn more to buy the same stuff you had been buying. If you've been saving up cash for a big purchase, that same inflation can keep your goal out of reach for longer.
There's always a chance your paycheck might keep up with increases in what things cost. If it doesn't, though, your true standard of living will decrease as you're forced to prioritize necessities over luxuries.
If you're not actively preparing yourself for inflation's return, odds are you'll be in a world of hurt when it once again rears its ugly head.
What can you do about it?
One of the best weapons you have against inflation may well be your investment portfolio. By owning shares in companies with solid financials, well supported dividends, and records of raising those dividends, you stand a fighting chance in the battle for your pocketbook. After all, if your investment income stream grows at least as fast as inflation, then what those dividends provide you will remain constant -- or perhaps even improve over time.
Even in these cash-constrained economic times, there are companies that are both financially and operationally strong. Those that are and also reward their shareholders with dividends are the ones most likely to help you combat the coming inflationary storm.
They tend to have a few key characteristics in common:
have risen in the recent past mean the companies' Boards of Directors are at least open to further hikes if warranted.Put those features together, and you wind up with a list of companies like these:
Company
1-Year
Dividend Growth
Payout
Ratio
Cash Flow Coverage of Earnings
International Business Machines (NYSE: IBM)
26.7%
21%
91.6%
Intel (Nasdaq: INTC)
21.7%
58.6%
98.9%
Abbott Laboratories (NYSE: ABT)
10.8%
44.5%
121%
United Technologies (NYSE: UTX)
15% Continued... |