The Federal Reserve has said it believes the current spike in prices is due to the unusual situation caused by the pandemic and subsequent recovery. Certainly, there are reasons to believe that special circumstances related to supply chain constraints, low inventory levels, and the sharp rebound in consumer demand should normalize.
But many people don’t want to take a chance on losing hefty paper gains, and want to shift at least some investments as a hedge in case inflation turns out to be more than transitory. These three stocks in the industrial sector have built-in protections from inflation, but also give investors a good reason to own them beyond that.
Still a worthy tollbooth
For years, income investors declared Kinder Morgan (NYSE:KMI) a “tollbooth” investment thanks to the recurring income from its vast network of pipelines that include take-or-pay contracts or set-fee payments. The company passed along to shareholders the reliable income it collected from delivering fuel through its pipelines, regardless of the price of commodities like oil or natural gas.
But Kinder Morgan miscalculated with its growth strategy, incurring too much debt along the way. By 2015, the long-term debt had grown to more than $40 billion, and the company slashed its dividend by 75% beginning in 2016. The stock crashed as income investors who owned Kinder Morgan sold it in droves.
But the company has spent the last few years lowering its debt, while continuing to grow operations funded by its cash generation. It also more than doubled the dividend from 2016 levels along the way, and yields a very respectable 5.6% at the recent share price. After its most recent dividend increase in April 2021, chairman Richard Kinder issued a statement saying, “… our assets continued to provide strong cash flow as we remain guided by a sound corporate philosophy: fund our capital needs internally, maintain a healthy balance sheet, and return excess cash to our shareholders through dividend increases and/or share repurchases.”
Total debt is at its lowest in over five years. The company predicts distributable cash flow in 2021 of between $5.1 billion and $5.3 billion. It holds $1.3 billion in cash and has almost its full $4 billion credit facility still available. Investors today should be able to count on steady and growing dividend income, making this energy pipeline operator a good inflation hedge.
Rising prices, rising profits
Nucor (NYSE:NUE), North America’s largest steelmaker and steel products company, just reported record quarterly profits in 2021’s first quarter. The company is enjoying the benefits of higher steel prices, and already has predicted the second quarter will bring another new record. Steel price futures as measured by hot-rolled coil steel continue to sit at record highs of about $1,640 per ton. That’s about 225% higher than just one year ago.
While pricing will eventually drop, either from… Continue reading at Fool.com