2 Investments to Protect Your Retirement Income From Inflation

Inflation can have a very detrimental effect on your retirement plans. Fortunately, you can structure your investment portfolio in such a way that it gives you an annual raise.

May 20, 2014 at 9:50AM

One factor that can have a significant effect on your ability to retire successfully is inflation. The progressive effects of inflation make it more expensive to maintain your lifestyle with successive year. As such, it is important to understand the impact of inflation on your retirement and ensure that your portfolio can handle its effects.

Basically, inflation causes the cost of everything you buy to steadily increase. Because of this, you need your income to go up in each and every year in order to maintain the same standard of living. While you are working and have a job, this is fairly easy to accomplish because many jobs give annual raises. However, it is not so easy when you are retired and living off of investment income.

Growing dividends to give yourself raises
In fact, though, this works essentially the same way in retirement. You just have to structure your investment portfolio in such a way that it can give you a raise each year.

One way to do this is to invest in dividend-paying stocks that are likely to increase their dividends every year. While there is no way to be absolutely certain what companies these will be, a good place to start is by looking for those companies that have a history of consistently increasing their dividend payments year after year. These companies are a good place to start because they have proven to have corporate cultures that are amenable to rewarding long-term shareholders by increasing their payouts year after year.

Norwegian oil and gas leviathan
Statoil (NYSE:STO) is a Norwegian energy giant that recently announced very strong first quarter results. The release also discussed the company's likely production growth going forward, providing a strong platform for dividend growth. However, is the company likely to increase its dividend as this growth story plays out?

Very likely, if you consider the company's long history of dividend growth.

Screen Shot

Source: Statoil

Statoil raised its dividend again in 2013 to NOK 7.00 per share. The company changed over to quarterly dividend payments this year and has apparently raised its dividend again to NOK 7.20 per share. Thus, the company seems to be dedicated to giving its shareholders a raise every year.

American upstream partnership
Another company that has a history of giving investors frequent raises is Breitburn Energy Partners (NASDAQ:BBEP). Breitburn Energy Partners is an energy-production company like Statoil but unlike Statoil it is not a vertically integrated corporation. Instead, Breitburn is a master limited partnership that owns oil and gas wells. This structure means that the company legally has to pay out nearly all of its earnings to its unitholders.

Breitburn has a history of growing its cash flows and distributions to its unitholders, now providing its investors with a very high yield of 9.74%.

Screen Shot

Source: Breitburn Energy Partners

These are just two companies out of many that investors can use to keep their retirement income growing in order to overcome inflation. Now that you know what to look for, hopefully it will be easier to find these sorts of stocks for yourself!

The top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.


Daniel Gibbs has a long position in Statoil. His research firm, Powerhedge LLC, has a business relationship with a registered investment advisor whose clients may hold positions in any of the stocks mentioned. Powerhedge LLC has no positions in any stocks mentioned and is not a registered investment advisor. The Motley Fool recommends BreitBurn Energy Partners L.P., Chevron, and Statoil (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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