One of the major benefits of investing in dividend paying stocks is their constant cash flow. The cash received from the dividend payments returns investors with a certain return despite what happens to the stock market overall.

 Inflation?

Inflation occurs when a currency becomes worth less. This happens naturally in economies around the world. In the United States, the inflation rate is measured by the consumer price index, referred to as the CPI. The CPI measures the cost of a “basket of goods” each month. Over time, the cost of the goods will slowly rise. According to the Bureau of Labor Statistics, the government organization responsible for measuring the CPI, inflation in the United States has ranged from -2% per month to slightly over 4% per month (at an annual rate) over the last ten years. Other than in the year of 2009, however, it has always trended upward.

 Example of Inflation

Assuming a 3% annual inflation rate (this is an arbitrary number chosen for this example, it is not based on the current inflation rate), the cost of everything you buy is going to rise by 3% per year. If a loaf of bread cost $1.00 at the beginning of the year, it will cost $1.03 at the end of the year. While $0.03 doesn’t sound like a huge number, imagine if you have an inflation of 3% over the next 20 years; your loaf of bred will cost $1.81. Inflation has the reverse effect on financial instruments. If you have a dollar at the beginning of the year and leave it in your wallet, it will still be worth a dollar at the end of the year. However, you will only be able to buy what .97 cents would have bought you at the beginning of the year.

Investing in Dividend paying stocks vs Inflation

This rate impacts your investments as well. If you own shares of a non-dividend paying stock that rises 3% over the year, on the surface you have made a 3% return. 3% is better than no return, but did you really earn 3%? In the situation above, based on a 3% interest rate, you actually came out even. Your 3% gain was cannibalized by the inflation rate.

If you own shares of a dividend paying stock, the situation is different. The dividend acts as a hedge, or protection, against inflation. If you own a stock that pays a 2.5% annual dividend and rises 3% over the year, you have earned a 5.5% annual return. After subtracting 3% for inflation, you have earned a 2.5% annual return. The dividend accounted for your entire return over the calendar year.

Natural Gas

According to Commodity HQ, as fracking continues to develop, and with new reserves being discovered on a daily basis, the world has watched natural gas production surge. Though still a non-renewable resource, natural gas burns cleaner and is cheaper than crude oil. As the world looks to replace dated energy sources, natural gas figures to be an increasingly significant commodity. At the forefront of the NG movement has been the U.S., as its presence in the natural gas world has continued to skyrocket in recent years.

The U.S. is now king of the gas world. In 2011, the country produced 62.7 billion cubic feet per day (bcfd), a record figure. That record was shattered in 2012, when the U.S. showed 65.7 bcfd for the 12 month period, an increase of 4.8% from the prior year. That figure also accounted for approximately 20% of natural gas produced worldwide. For 2013, the U.S. is already on pace to show another production record.

HYPERLINK "http://commodityhq.com/wp-content/uploads/PD-Natural-Gas3.jpg"As production has surged, prices for the commodity have been battered, keeping something of a ceiling on NG. While this has hurt some traders and bottom line revenues for major producers, it has translated into lower energy bills and more money in the pocket of the consumer. The excess in supply has also led to speculation that the U.S. will begin exporting NG to foreign countries as some of the price differentials have painted a prime opportunity.  “US natural gas producers have begun eyeing these markets due to the large differential in price between US natural gas and LNG prices in certain countries” writes Robert Rapier. Rapier goes on to explain that transporting NG products overseas costs approximately $6/MMBtu. Last year saw a price difference between the U.S. and Japan of $14/MMBtu and $8/MMBtu for European markets, leaving plenty of room for U.S. producers to turn a handsome profit.

For our members this week we have looked at several of these companies for exportation of the fuel and have chosen one to place in our portfolio that is poised to do well in this market in the coming years.

Disclaimer:  Suburban Trader is a publisher of financial news and opinions and NOT a securities broker/dealer or an investment adviser.  You are responsible for your own investment decisions.  All information contained in our newsletters or on our web site(s) should be independently verified with the companies mentioned, and readers should always conduct their own research and due diligence.

Investment Strategies

Is there Money Overseas?

While pondering on what to share this week I remembered this  stock that I placed in our portfolio last week to give us some overseas exposure.  It is a stock in a country where most of their companies pay out dividends and at present it has a 10.64% dividend yield.  Dividends from overseas is a great way to diversify some of your holdings by purchasing out of the United States while yet still being able to purchase them on our Exchange. 

Follwing is an article that I would like to share from the Wall Street Journal by Ms Reshma Kapadia and her findings on Overseas investing.  She agrees with me that the stocks that pay the biggest dividends on the market today probably aren't where you think. They're mostly outside the U.S.

Nice steady dividends have taken on a newfound shine in recent years. A company's ability to pay a dividend is "an indicator of management's confidence in the future of the business, which is really important in this climate," says Causeway International Value co-manager Harry Hartford.  Fund managers who focus on dividends and other investment pros say many foreign companies pay bigger dividends than U.S. businesses today.

Companies in Europe have a culture of favoring dividends over buybacks, and an investor base that demands a payout. Companies in Asia and emerging markets in general, meanwhile, increasingly see dividends as an important tool to attract capital and boost confidence in their prospects.

YOU ASK, HOW DO THEY COMPARE

So, the 2% average dividend yield for companies that make up the Standard & Poor's 500-stock index may look attractive compared with the recent yield of 2.6% on the 10-year Treasury bond.

But the average payout for the MSCI World index excluding the U.S. is almost 3%; dividends for companies in the euro zone average 3.5%; and in so-called frontier markets—places like Nigeria and Indonesia, with less liquidity and greater risk than more established emerging markets—the average is 4.1%.

Investment professionals say foreign stocks also have a better outlook for dividend increases, helped by earnings growth prospects—especially in emerging markets—and the recent adoption of dividend policies in parts of Asia.

Over the past fiscal year, dividend growth for the world outside the U.S. has averaged almost 11%, with Europe coming in at nearly 16%. That compares with about 5% growth in the U.S., according to MSCI.

One way to profit from the higher rates available abroad is through international dividend funds. In addition to bigger dividends, they offer an income stream from a geographically diverse base of companies, some of which operate in markets not affected greatly by the recent global downturn. Some funds also include emerging-markets and frontier-market plays.

CAVEATS

While there seem to be plenty of downsides to overseas dividends, including currency fluctuations, which can dent the value of a payout if the dividend's base currency falls in relation to the dollar. Some funds hedge against this risk, though. Foreign companies also have a tendency to issue special dividends when profits are exceptional or the company has amassed a heap of cash, which can muddle investors' efforts to determine normal yields.

Another danger: Many foreign companies link their dividends to a percentage of earnings, meaning dividends can fall abruptly when earnings do. Fund managers look for companies that set a floor for their dividends. Still, overseas dividend income streams can vary more than their U.S. counterparts.

With all of that being said there is still money to be made in the Overseas Market with dividends.  Another good place to look at Overseas involvement in dividend paying companies is in the Emerging Markets area.  Dividends are probably not the reason many investors look for opportunities in emerging markets, but there are plenty of good payouts to be found.

"In some of these markets, information in companies is difficult to obtain, so when a company pays a dividend it speaks volumes about management's views and credibility," says David Ruff, manager of Forward International Dividend. His fund has shares of Turkish dairy Pinar Sut Mamulleri Sanayii AS, yielding nearly 10%, and Nigerian Breweries PLC, paying about 5%.

Shares of companies in emerging markets can be volatile when liquidity is poor. But investors have been moving into countries like Indonesia and Thailand where consumer spending is on the rise.

Some of Thailand's biggest companies pay yields of 5% to 6% and appear likely to increase those, says Mr. Harriss. Thai companies make up 15%, the third-largest weighting, in the Guinness Atkinson Asia Pacific Dividend fund.

The company that we added to our portfolio is a Chilean based company that is traded on the NYSE and it has been paying dividends since 1990.

Of course if you don't have the time, we've done all of the leg work for you with a money back guarantee at Suburbantrader.info

May your investing be profitable.

Disclaimer:  Suburban Trader is a publisher of financial news and opinions and NOT a securities broker/dealer or an investment adviser.  You are responsible for your own investment decisions.  All information contained in our newsletters or on our web site(s) should be independently verified with the companies mentioned, and readers should always conduct their own research and due diligence.

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