Four Inflation-Shedding Income Investments to Own Amid War, Rate Hikes
By: Paul Dykewicz,
Four inflation-shedding income investments to own as potential safe havens as Russia restricts the world’s food supply by attacking and blockading Ukraine have the potential to help reduce the risk of famine from spreading beyond 140 million undernourished people in needy nations.
The four inflation-shedding income investments to own, after interest hikes by central banks this week of .75% in the United States and .25% in the United Kingdom, feature a royalty company, an energy stock and other prospective hedges to shield against further rate increases. Despite President Biden blaming the worst inflation in 41 years on Russia’s unrelenting attacks on Ukraine’s military and civilians, other reasons include disrupted supply chains, prolonged government stimulus policies, soaring federal deficits and regulatory curbs on fossil fuels.
Russia’s President Vladimir Putin, who triggered sanctions on his country by sending troops into Ukraine in violation of international law, is insisting that other nations cease their restrictions on his country’s goods before he allows grain exports to resume. Russia’s invasion of Ukraine, described by Putin as a “special military operation,” has shelled hospitals, schools, residential areas, churches, nuclear power plants, oil refineries, a theater used as a shelter and even a train transporting food for World Central Kitchen, amid reports of potential war crimes of his soldiers raping, torturing, kidnapping and executing Ukrainian civilians.
Four Inflation-shedding Income Investments Offer Alternative to U.S. Dollar
The U.S. dollar offers an inflation-shelter through Invesco DB U.S. Dollar Index Bullish Fund (NYSEARCA: UUP), but it does not pay a dividend. The Fast Money Alert advisory service, co-led by Mark Skousen, PhD, and Jim Woods, informed its subscribers this week that the fund can be used as an inflation hedge.
The investment seeks to establish long positions in ICE U.S. Dollar Index futures contracts with the intent of tracking the changes, either positive or negative, in the Deutsche Bank Long USD Currency Portfolio Index. UUP invests in futures contracts to try to mirror the results of the index that is calculated to reflect the changes in market value over time, whether positive or negative, of long positions in dollar contracts. As the U.S. Dollar Index moves against a basket of foreign currencies that include the euro, the yen and the Canadian dollar, so does UUP, Skousen and Woods wrote.
Mark Skousen, head of Forecasts & Strategies, meets with Paul Dykewicz.
Royalty Company Is one of Four Inflation-shedding Income Investments to Own
Skousen, who also leads the Forecasts & Strategies investment newsletter and the Five Star Trader, Home Run Trader, TNT Trader services, further favors a royalty company as an inflation hedge: Dorchester Minerals, L.P. (NASDAQ: DMLP), of Dallas. The oil and gas royalty company, a recent recommendation of Five Star Trader, began operations on January 31, 2003, after the combination of Dorchester Hugoton, Ltd., Republic Royalty Company, L.P. and Spinnaker Royalty Company, L.P.
The limited partnership (LP) has been expanding its resources, acquiring 3,600 new mineral and net royalty acres in 13 counties across Colorado, Louisiana, Ohio, Oklahoma, Pennsylvania, West Virginia and Wyoming. Skousen wrote that it has $33 million in hand to support further growth, with only $1.8 million in debt.
“Business is booming,” Skousen opined. “Revenues and earnings more than doubled in the past year.”
Chart courtesy of www.stockcharts.com
One of Four Inflation-shedding Income Investments to Own Has Soared
The royalty company’s revenues rose 127% to $112 million, and its earnings grew 159% to $86 million. Plus, its profit margins exceed 76% and its return on equity (ROE) reached 70.9%.
Dividend lovers will appreciate that Dorchester has provided payouts to its shareholders. In the past year, Dorchester’s quarterly dividend has gone from 48 cents to 75.4 cents per unit. Expect another increase in July, with Dorchester selling for just 11.8 times earnings, Skousen continued.
High-Yield Energy Mutual Fund Joins Four Inflation-shedding Income Investments to Own
Kayne Anderson Energy Infrastructure Company (NYSE: KYN), a Houston-based closed ended equity mutual fund launched and managed by KA Fund Advisors, LLC., provides the largest payout of the four inflation-shelter investments to buy. KYN offers a current dividend yield of 10% and is a recommendation of Bryan Perry, a high-income aficionado who is a veteran of Wall Street firms and the editor of the Cash Machine investment newsletter.
Paul Dykewicz interviews Wall Street veteran Bryan Perry, who heads the Cash Machine newsletter.
Crude oil prices have risen in recent months, but they dipped Tuesday, June 14, amid reports that President Joe Biden and Saudi Arabia’s crown prince would meet and possibly agree upon Organization of the Petroleum Exporting Countries (OPEC) boosting production to offset global supply constraints. Oil hit 14-week highs earlier on June 14, with U.S. crude climbing to almost $124 a barrel as OPEC kept its forecast that 2022 global oil demand would top pre-pandemic levels. Changing political winds have increased the volatility of energy as an investment lately.
Perry chose to use KYN to increase the weighting of his monthly newsletter’s model portfolio to tap into a secular transition to natural gas from coal at America’s largest electric utilities. The mutual fund provides exposure to the rising demand for exporting natural gas to Europe and Asia through liquified natural gas (LNG).
Chart courtesy of www.stockcharts.com
Pension Fund Chairman Recommends Broad Dividend-paying Energy Fund
Bob Carlson, a pension fund chairman who also leads the Retirement Watch investment newsletter, currently is recommending DWS RREEF Real Assets (AAASX). The investment uses a basket of four different inflation hedges and has six share classes.
Carlson advised that investors check with their brokers or the fund for guidance on the best share class for each person. The mutual fund is allocated among inflation-sensitive assets, including infrastructure stocks, commodities, gold, real estate stocks and Treasury Inflation-Protected Securities (TIPS). It owns both stocks and futures contracts.
Chart courtesy of www.stockcharts.com
The fund’s managers change the allocations to the different sectors based on economic outlook and inflation. They have shown a knack for profitably adjusting the portfolio, Carlson commented.
In addition, analysts specializing in each of the sectors select the individual securities to be purchased after the top managers decide on allocations. This investment offers diversification and a chance to benefit from a full basket of inflation hedges, he added.
Bob Carlson, who leads Retirement Watch, meets with Paul Dykewicz.
Connell Chooses One of Four Inflation-shedding Income Investments to Own
“Real assets typically provide purchasing power protection during periods of inflation,” said Michelle Connell, a former portfolio manager who heads Dallas-based Portia Capital Management.
Real assets include real estate investment trusts (REITs), real estate, energy and commodity futures. Most classifications of REITs benefit investors in the form of dividends and purchasing power protection.
However, REITs that have distribution centers and warehouses as their underlying properties also will benefit from supply-side inflation that is caused by a lack of goods demanded by consumers, Connell said.
Michelle Connell, CEO, Portia Capital Management
Connell told me one of her favorite REITs involved in distribution centers and warehouses is Boston-based Stag Industrial Inc. (STAG). A key reason is that distribution centers became more “imperative” during the pandemic due to a shift from brick-and-mortar retailers to online shopping.
Amazon (NASDAQ: AMZN) is STAG’s largest tenant and 40% of the REIT’s portfolio provides distribution for e-commerce businesses, Connell said. Its stock has pulled back with the market in the past month, but Connell views that reduced price as a buying opportunity.
Chart courtesy of www.stockcharts.com
“The demand for distribution centers is expected to continue to grow,” Connell said. “While e-commerce sales have grown 167% in the past five years, they are expected to grow another 50% in the next five years.”
Supply Chains Remain Susceptible to China’s Lockdowns
The U.S. ambassador to China criticized China’s “zero-COVID” tolerance policy on June 17 for potentially causing serious damage to the global economy and foreign business with the resumption of lockdowns after some of its residents tested positive to inflame concerns for a resurgence of the virus. However, China is continuing to seek to contain outbreaks of COVID-19 with strict lockdowns, while most other countries seem to be adopting policies to balance anti-coronavirus measures with exposure to the risk.
Earlier this week, Chinese authorities responded to new cases by shutting down dozens of bars and hundreds of restaurants in Beijing. It came after nearly two months of lockdowns in China’s economic center of Shanghai, a large city that has begun trying to rebound economically after much normal commerce was stymied.
Disrupted supply chains for products such as rice, oil and natural gas now are starting to normalize again in Shanghai but the new restrictions occurring in Beijing add risk for investors. China’s recent lockdowns have affected an estimated 373 million people, including roughly 40% of the country’s gross domestic product (GDP).
Shanghai, home to 25 million residents and the world’s largest port, had strained to unload cargo due to strict regulations that caused shipping containers to stack up. Some Shanghai residents even posted videos online that went viral to complain about a lack of food during the lockdown there.
U.S. COVID Deaths Surge past 1.013 Million
U.S. COVID-19 deaths rose to 1,013,351, as of June 17, according to Johns Hopkins University. Cases in the United States climbed to 86,213,825 on that date. America retains the dreaded distinction as the nation with the largest number of COVID-19 deaths and cases.
COVID-19 deaths worldwide totaled 6,317,273, up about 5,000 in the last few days, as of June 17, according to Johns Hopkins. Cases across the globe have surged by slightly more than 538,323,117.
Roughly 78.1% of the U.S. population, or 259,198,178, have obtained at least one dose of a COVID-19 vaccine, as of June 17, the CDC reported. Fully vaccinated people total 221,924,152, or 66.8%, of America’s population, according to the CDC. The United States also has given at least one COVID-19 booster vaccine to 104.7 million people, up 200,000 in the past several days.
The four inflation-shedding income investments to own offer an opportunity to profit and to support companies that can help alleviate the world’s growing hunger problem. Amid the highest inflation in 41 years, the Fed announced a .75% interest rate increase on June 15 and plans for another one of between that level and .50% next month to limit price hikes that also have been exacerbated by rising federal deficits, supply chain disruptions and Russia’s unrelenting attacks on Ukraine. These four inflation-shedding income investments to own offer potential relief from the market’s recent drops.
Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, Guru Focus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for multiple-book pricing.