Strategies to Aid Your Portfolio During High Inflationary Environments

By Anthony Rhodes

There are very few things which can send a chill down the spine of the business community, as does the prospect of rising inflation. This scourge forces them to prematurely raise the prices of their goods and services, which, inevitably results in less purchases of their offerings, and contributes overwhelmingly in downturns in consumer sentiment, which tends  to hang over the economy like a gigantic dark cloud; omnipresent above our heads, and extending ominously in all directions.

As for investors, the news of its arrival is equally as stark. Decreases in purchases results in lower corporate earnings, which naturally equates to negative movements within their equity positions, and forces them to seek out alternative investing vehicles, which, while in such an environment are much safer, generally lacks the growth potential to offset the nauseating conditions which this debilitating environment unfortunately produces.

But within our equity offerings are a slate of companies which can help to bring a modicum of sunlight to these dreary, overcast days. Purchasing stocks which offer attractive dividends and have aggressive buyback programs, can both be beneficial boons for investors during these times. In addition, they also provide the hope of even higher gains once the inflation issue has run its course, and the sun begins to peek through the darkness, yet again.

Paid to Wait

Buying stocks which pay attractive dividends is a healthy strategy for investors, in general, but during high inflationary environments, their importance takes on an even greater meaning. By selecting the right companies (and not just any name from among the pack), you can be essentially paid to wait, while the members of the Federal Reserve Board devises tactics to tame the inflation scourge, and place the economy on a more firm and balanced footing. When choosing, it's important to seek out companies with a history of dividend payments through various economic cycles, as the current environment will cause unhealthy corporations to tighten their belts, and lower or eliminate their dividend altogether. The homework may take a while, but it's far better than being enticed by a seemingly high dividend by a wave riding company, only to see it later taken away because it can't generate enough income to meet its financial obligations.

The Buyback Payback

The math regarding our next strategy is pretty straightforward: less shares outstanding results in higher earnings per share, and higher earnings normally equates to increases in stock prices. This is the benefit of owning companies that implement aggressive buyback programs. During increasing inflationary environments, only fiscally strong corporations will either initiate or continue buybacks, which can be viewed as a proxy for solid leadership, and excellent business execution. The cherry on top is, of course, that when the inflationary crises abates, these companies will emerge leaner and meaner than before, and positioned very well to provide your portfolio with even greater returns when ideal economic conditions once again return to the fore.

Living with inflation is a fact of life. And while our administrators at the FRB will use all the means at their disposal to keep it at bay, our various investment vehicles can also play a considerable role in helping to assist in its taming. Through prudent investment research, and savvy product selection, we can create situations which, while won't exactly make its unwanted arrival a pleasant experience, by any means, but can most certainly make the duration of its visitation a bit more easier to cope with.

(Anthony Rhodes is the President and owner of wealth management firm The Planning Perspective Do not reproduce without permission.)