Happily, June has been good to my portfolio, and aside from taking some gains in one stock (WWE) that has appreciated sharply this year and adding a bit more GE (I’ve made the mistake of chasing this stock down before, but now I think we must be near a bottom, though a turnaround seems far off and the break up plan is hardly assured of success) and General Mills (again, a stock that’s fallen on weak outlook numbers but sports a dividend yield that makes up for the modest growth prospects) I’m mostly standing pat.

That’s because rising interest rates, as I’ve said before, could really dampen the appetite for dividend stocks. And the government’s most recent inflation data should be a cause for concern. (Personal consumption inflation came in at 2.3% in May, after reaching the 2% annual rate in April. Two months may not make a trend, but I doubt these numbers are an aberration.)

I know, I came of age in the late 1970s and early 1980’s. I remember “stagflation.” I remember when double digit rates on 30-year mortgage loans seemed normal. Heck, I may even have been getting double digit interest income on bank CDs (though admittedly, I can’t recall the specifics). I’m hopeful that we won’t see anything as disconcerting as double digit inflation and interest rates, but policy makers in Washington certainly seem to be doing their best of increasing the risk of stagflation in the future.

So, when I add to my holdings or take a look at a new dividend stock this week, I find myself wanting to push the “pause” button. I’m not one who tries to time the market, but there are occasions when I think I might as well sit on my investment thesis for a few days, weeks or months and see how the macro economic environment evolves.

 

Barron’s has an interesting article by Jack Hough explaining how advances in battery capacity are changing the prospects for the utility industry (spoiler alert–not surprisingly, advances in power storage capacity will further encourage a shift away from more expensive natural gas, coal and nuclear generated electricity toward toward greater reliance upon less expensive renewable sources–wind and sunlight.)

The article is behind a firewall, so I’m not sure if you can read it in full if you’re not a subscriber. But the article says American Electric Power and Xcel Energy (dividend yields of 3.9% and 3.6% respectively) are among the utilities with substantial capacity to add wind farm capacity. AEE is currently building an 800 turbine wind farm in Oklahoma.

Xcel Energy, based in my hometown of Minneapolis, has a long track record of building wind power farms. Already, renewables account for 23% of the company’s power generation. The company plans to increase that to 47% by 2027, according to Barron’s. That is a nice feel good benefit of sustainability to go along with the company’s attractive dividend yield.

 

 

Over the course of the past year, I’ve had the opportunity to sit down with several financial advisers who emphatically assured me that they and their large, institutional employers see little evidence of inflation creeping up in the economy.

I beg to differ. So far, inflation seems to be poking up in high-end markets like luxury housing and high end art. It doesn’t seem to surprising to read that a Picasso that sold for X million a few years ago has just resold for X times 4. Or that upscale condos in New York and San Francisco are sometimes fetching upwards of $10,000 a square foot. (At least in Manhattan, it doesn’t seem like too many years ago when $1,000 per square foot seemed expensive.) But inflation in the luxury world, which might be something of a byproduct of the increasing concentration of wealth in the top 1% and above, likely will find a way to trickle down or spread out to effect the wider market. In Minneapolis, my hometown, housing prices have been increasing at an annualized rate of 10% for the last four years. First time home buyers are facing a shrinking market and rampant bidding wars. In just about every metropolitan area with a high several of desirability and a strong local economy, home values are growing at a pace that significantly exceeds income growth.

With a new tax law that is expected to significantly increase the national budget deficit, the government will be increasingly tempted to print more money pay its bills. Eventually, that inflationary pressure is going to show up in the check out line as well as in housing and luxury markets.

Why do I bring this up in a blog about investing for dividend income? Because higher inflation means higher interest rates, and that could pressure the stock prices of dividend paying stocks, especially those that have served as a refuge for income oriented investors who tired of low rates in the bond market. We’ll have to wait and see if my fear of rising inflation is justified, and time will tell how much pressure that put’s on stocks, but for the moment I’m treading cautiously as a stock market investor.

Having said that, this week I added a little to my holdings in General Mills (GIS). The stock has fallen considerably over the last couple of years, in part because of growing consumer preference for fresh foods. As Jim Cramer lamented some time ago, the company’s brands are “tired.” But recent acquisitions in the organic and pet food space may help the company reboot its growth potential. And, quite frankly, at about $43 a share General Mills makes a lot more sense than it did at its $72 peak a couple of years ago. I think further downside risk is limited, and turnaround potential is strong. So I’m buying for its 4.4% yield. And because I like to have my wallet back up my investment thesis, I’ll stock up on Cheerios and Yoplait as well.

 

 

Hello, investing world. This weekly investment newsletter is in it’s beta phase, as the tech kids like to say. What that means is that I haven’t picked a start date for publication, but my initial plan is something like this:

Each Friday, after the closing bell, I’ll highlight an equity income opportunity that I think should appeal to investors who what to see their money working for them. With an aging population and historically low bond yields, a lot of people have turned to dividend paying stocks (and mutual funds and ETFs) to satisfy their desire for a stream of investment income. I hope to share with investors some of my choices to build a successful income generating portfolio. I also hope to provide a few links to other relevant news and views about income investing that I find online.

As my plans gel and I get more comfortable building a Web-based journal, I’ll keep you posted on a launch date. In the meantime, I’m already compiling a compelling list of dividend paying opportunities.