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Warning, Warning, Hyperinflation is already here



April 01, 2009 – Comments (6) | RELATED TICKERS: T , LLY , MRK

A few weeks ago I wrote about how I was pleasantly surprised at how decent Kiplinger's magazine is.  So much so that I decided to spend the big bucks and subscribe for a dollar per issue.  I received my first issue in the mail today and I was flipping through it while barbequing diner for my family on the deck last night.  What I found absolutely shocked me. 

I'm not sure what the official title for this thing is, but you know the insert that you can tear out and mail in to subscribe?  Well, it was touting in huge red letters "Kipinger's ONLY $1.25 an issue."  Ahhhhh hello, I just subscribed to it a month ago for $1 per issue.  That's a 25% increase in the cost to subscribe in only one month.  If I was to annualize tha, we're talking about a Zimbabwe-like annual inflation rate of 300%!  I had no idea that hyperinflation would arrive so quickly.  Damn, I need to buy more gold ASAP.

I kid, I kid.  A serious loss in value for the U.S. dollar and a spike in the price of gold are a real possibility.  I'm more in the deflation camp for now, but I can see the logic in the inflationists argument and I agree with them that significantly higher interest rates and higher prices will eventually rear their ugly head some day.

Anyhow, this month's issue contains an article titled "Whose Dividend Can You Trust."  It's not available on-line yet, so I am going to give you an exclusive sneak preview that only subscribers like me who pony up the big bucks have access to.

The article contains a great quote on dividend paying stocks from Dan Peris, manager of the Federated Strategic Value fund. 

Back in the day, when company officials declared a dividend to be sacrosanct, Peris believed them and so did the stock market.  Historically, during recessions and bear markets, high yielders and companies that regularly boosted their dividends had proved to be safer than companies that didn't pay dividends.

Not this time.  "Today we take everything with a grain of salt," Peris says.  "We're in wartime now, especially in the financial sector."  He assumes that all dividends from banks, insurers and real estate trusts are in danger.  And Peris doesn't stop with financials.  In February, he notes, Dow Chemical reduced its dividend by 64%, its first decrease in 97 years.  The message: If a company such as Dow can cut its dividend, anyone can.

I completely agree with Peris.  All of the dividend cuts that we have seen with common stock lately are one of the reasons that I have been concentrating my investments in preferred stock and bonds lately.  Preferred stock dividends have priority over common stock dividends.  They are less likely to be cut and many preferred stock issues are "cumulative" which means that if a company is forced to temporarily turn off the preferred dividend spigot it will eventually have to pay you all of the divies that it missed.

Bonds are even safer than preferred stock.  Companies cannot miss bond payments.  If they do, it means that they're bankrupt or that they are in serious financial trouble and they have negotiated a deal with bondholders.

Back to common stock.  the Kiplinger's piece recommends the common stock of ten companies that pay solid dividends.  They believe that these divies are safe and even have a chance to rise this year.

The companies are:

AT&T (T): 7.3% I own it in CAPS, not real life

Chevron (CVX): 4.5%

Eli Lilly (LLY): 7.0% I own it in CAPS, not real life

IBM (IBM): 2.3%

Kimberly-Clark (KMB): 5.5% I own it in CAPS, not real life

Merck (MRK): 6.7% I own it in CAPS, not real life

Pinnacle West (PNW): 8.9% Interesting.  I don't know this one.  I have added it to my CAPS watchlist.

Pitney Bowes (PBI): 8.0% - On a personal note, I absolutely hate these vultures.  They rip off their postage meter owners royally.  They charge a monthly fee to rent a meter, a fee to recharge it, a fee to blow your nose, etc...  My company finally got fed up with them and canceled our postage meter.  Who in the heck mails stuff any more anyhow?  My company and every one that we deal with is trying to cut back on our use of paper.  We disguise it as a green initiative, but we're really jut trying to cut costs.  I would stay away from this one.

Qwest Communications (Q): 10.0%

Realty Income (O): 11.3%

That's all the time I have for now.


6 Comments – Post Your Own

#1) On April 01, 2009 at 7:12 AM, lquadland10 (< 20) wrote:

Well what is the saying. Buy low sell high.This way you buy gold now while it is low and you have time to cost average down and voila you will be one of the few who will do well in the up coming mess.

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#2) On April 01, 2009 at 8:35 AM, JTShideler (50.15) wrote:

Yes although its hard to open a small position in Gold.  Its like trying to Dollar Cost Average Berkshire Hathaway, okay not quite as costly but unless your buying an ounce at a time (paying a premium) it would be hard for most people to DCA.

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#3) On April 01, 2009 at 1:03 PM, nottheSEC (80.91) wrote:

Interesting article and absolutely agree except for one thing.Kiplinger thinks Q(uest) is a safe dividend?Anywho I'm in the gold camp now also eyeing silver. I blogged about how I think the juniors offer true value today.

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#4) On April 01, 2009 at 1:11 PM, nottheSEC (80.91) wrote:

Also Nick Pickin Bowes does stink. I have had the same experience inthe past. Hopefully they will change due to increase comp withonline postage. Also on my prior post on gold juniors here is my blog today. To all please make gold and silver a part of your real life portfolio.

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#5) On April 02, 2009 at 6:04 PM, Tastylunch (28.52) wrote:

Craeful with Pinnacle West (PNW) Deej, they have a real estate/developer division, haven't looked ah their exposure lately but that's why the are cheap most likely.

Full disclosure I'm a former stockholder in it

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#6) On April 03, 2009 at 4:33 PM, TMFDeej (97.48) wrote:

Thanks for the warning, Tasty.  I don't know much about them.  I chucked PNW into my CAPS watchlist box along with a million other companies.  I'm not looking to put any more real money into utilities at this time.


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