
100 American {dollars} being printed.
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What the heck would a soar in inflation imply for our dividends? I’m getting that query from readers loads nowadays, so as we speak we’re going to take a more in-depth look.
Then we’ll dive into three sectors—and three dividend payers (together with one yielding an eye-popping 10%)—you’ll wish to put in your radar now.
All three of those shares boast excessive yields and/or sturdy dividend development, plus large upside potential. Taken collectively, I anticipate their whole returns to simply outrun any rise in inflation—and rates of interest—we’ll possible see.
Cash Printer Revs Up
The argument that we’re heading for a soar in inflation is fairly clear—a couple of days again, we noticed the patron value index (CPI), the go-to measure of inflation, pop 2.6% in March from a 12 months in the past, far more than anticipated.
Then there’s Fed Chair Jay Powell’s cash printer, which remains to be caught within the “excessive” setting, with 21% of dollars on the market having been minted within the final 12 months alone!
Rampant cash printing and a pop in client costs are telltale indicators that an inflationary interval is bearing down on us.
However wait! As a result of there’s additionally cause to suppose inflation fears might be overblown. For one, gold, which generally rises in instances of inflation, is doing the other.
And right here’s one thing else to remember: that March CPI quantity compares to March 2020, when the economic system first went into shutdown. Which means we’ll possible see equally excessive numbers within the coming months, as as we speak’s rebounding economic system stacks as much as 2020’s flattened one.
That may create the phantasm of excessive inflation and rattle the mainstream crowd, who will swiftly conclude that we’re heading again to the 1970s.
They’ve already made that conclusion—over the previous few months, they’ve been dumping 10-year Treasuries, which, in flip, drives up Treasury yields—the pacesetter for rates of interest on all the things from bank cards to mortgages. Heck, a Treasury purchased as we speak yields practically double what it did in early January!
That leads me to the three sectors—and three particular shares—we’re going to debate as we speak.
“Inflation-Proof” Play No. 1: An Vitality Dividend That’s Rising Quick
Since Could 2020 in my Contrarian Earnings Report service, we’ve been fixated on power costs’ crash ’n’ rally sample, which unfolded from 2008 to 2012 and is underway once more.
Right here’s the way it usually performs out:
- First, demand for oil evaporates resulting from a recession. Oil costs crash.
- Subsequent, power producers slash prices and manufacturing.
- The economic system recovers. Vitality demand picks up.
- However there’s not sufficient provide! So oil costs climb.
- Vitality producers convey provide again on-line, however it takes time to discover and drill. Provide lags demand for years, and the worth of oil climbs and climbs.
We’re nonetheless early on this newest crash ’n’ rally sample. We must always assume that oil costs will preserve climbing for the subsequent two or three years no less than.
My wager? Oil will clear $100 once more earlier than this rally is finished—and if inflation does tick up, useful resource shares are a pure hedge, as a result of oil, gasoline, base metals, you title it—all rise with inflation.
We additionally need lengthy publicity to grease as a result of demand is outpacing provide in the meanwhile.
In accordance with the Worldwide Vitality Company (IEA)—the most effective supply of trade data in my e book—world oil demand will develop to 96.Four million barrels per day. Oil provide, in the meantime, is simply 93.6 million barrels per day. With a three-million-barrel-per-day shortfall, the worth of oil goes to maintain climbing till that imbalance is resolved.
And Canadian Pure Assets (CNQ) is primed to capitalize. CNQ is the biggest producer of heavy crude in Canada and a significant pure gasoline producer, with properties in British Columbia and Alberta.
CNQ’s shares have bounced this 12 months, together with oil, leaping some 34%. However they nonetheless have room to run, thanks partially to their discount valuation: CNQ trades at simply 11.5-times earnings as I write this.
You’re additionally getting a strong dividend, with administration pulling off one thing few power corporations might final 12 months: preserving the payout regular—and delivering a pleasant hike in December. All in all, CNQ’s payout has greater than doubled (in Canadian {dollars}) within the final 5 years.
The truth that the corporate pays dividends in Canadian {dollars} additionally works in our favor, with the dollar anticipated to fall additional versus its resource-powered Canadian cousin within the coming months. That will inflate our payout additional.
“Inflation-Proof” Play No. 2: A Rock-Regular Infrastructure Fund Yielding 10%
One other solution to beat inflation is to seize a closed-end fund (CEF) with a gentle—and big—yield. Even higher in case you can choose one up at a reduction, as you’ll with the Duff & Phelps Utility & Infrastructure Fund (DPG).
DPG’s portfolio contains a good break up between utilities, akin to renewable-power chief NextEra Vitality
NEE
EPD
That blend works nicely as a result of utilities, together with cell-tower landlords, will profit from President Biden’s large infrastructure bundle, plus elevated use of their providers as extra companies come again on-line. And with DPG, we’re additionally having access to knowledgeable managers who can shift the portfolio as circumstances change.
However the large hook right here is DPG’s large 10% dividend, which hasn’t flinched for the reason that fund’s inception a decade in the past:
A 10% Payout You Can Rely On

DPG Distribution Historical past
CEF Join
Lastly, the CEF trades at a 3% low cost to web asset worth (NAV, or the worth of its portfolio) as I write this. It’s traded at premiums as excessive as 4% within the final 12 months, so additional upside from a closing low cost is feasible right here, along with positive factors from the rising worth of DPG’s holdings.
“Inflation-Proof” Play No. 3: A 5%-Paying Insurer That’s Absurdly Low cost
Insurance coverage large Prudential
PBIP
The inventory has bounced currently, as buyers understand insurance coverage shares (which make investments the premiums they accumulate in secure investments like Treasuries) are prime beneficiaries of rising charges.
However we nonetheless have an opportunity to purchase in, as a result of regardless of its latest positive factors, Prudential shares are solely 3% above their pre-pandemic degree. The inventory additionally “breaks” nearly each measure of valuation: it trades at simply 8.4-times forecast 12-month earnings, for instance, and simply 57% of e book worth—or what its bodily property could be value in the event that they had been offered off as we speak. Which means we get its international insurance coverage enterprise—and its well-respected model—totally free!
Administration sees what an amazing deal the inventory is: PRU has purchased again 11% of its inventory within the final 5 years. If you happen to’re wanting so as to add a top-quality insurer to your holdings, now could be an excellent time to hitch them.
Brett Owens is chief funding strategist for Contrarian Outlook. For extra nice earnings concepts, get your free copy his newest particular report: Your Early Retirement Portfolio: 7% Dividends Each Month Endlessly.
Disclosure: none