Not depression or economic collapse. Not even taxes. It’s the insidious debasement of the dollar through inflation. (You’ll need $7 to buy today what a dollar would have bought in 1965.) If you’re retired or otherwise living off your investments, one of your primary goals for the long run is to protect your purchasing power.
Certain tangible assets, such as gold and silver, can serve this purpose admirably — at least if you hold them long enough. However, precious metals and other raw materials present a difficulty: They generate no income. You have to sell them to realize spendable cash, and there’s no guarantee the market will offer you a favorable price if you need to sell in a hurry.
To sidestep these obstacles, I advise folks in or near retirement — or those who simply want to build more income (and stability) into their portfolio — to invest a portion of their wealth in companies that produce commodities. At the moment, the oil and gas sector in particular is brimming with opportunities to earn a generous cash yield up front.
Of course, the petroleum-producing business also furnishes an excellent long-term hedge against inflation. As the chart below illustrates, oil usage in the Old World (United States, Western Europe, Japan) actually has declined a bit since the late 1990s. But the New World — Asia, Latin America and so on — has taken up all the slack and more. In real (inflation-adjusted) terms, we can expect oil prices to remain high for a long time to come, triggering outsized profits for companies that mine “black gold.”
2 Dividend Stocks to Play Oil Producers
For conservative investors — a category that includes most retirees — I suggest taking a look at giant, well-known international producers. Some are on the expensive side right now, such as Top 4 Dividend Stocks tobuy in 2012 -ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX). Thus, I rate this pair a hold rather than a buy at the current price. Ditto for BP (NYSE:BP). On the other hand, here are two oil majors you can safely buy for income and growth at, or slightly below, today’s levels:My top pick right now in the group is Top 4 Dividend Stocks tobuy in 2012 -Royal Dutch Shell (NYSE:RDS.B), which currently yields 4.6%. In February, Shell raised its dividend for the first time since 2009 — a sign of management’s growing confidence that the company can meet its target for a 25% boost in production by 2017-18. I favor the Class B shares, based in London, because they incur no dividend withholding tax. Buy RDS.B at $73 or less.
