Warren Buffett believes that an onslaught of inflation will be one of the unwelcome aftereffects of the government's massive economic rescue attempts. And who could blame him? With over $13 trillion thrown at these problems, much of it either directly printed or loaned out for next to nothing, there are a lot of newly minted dollars floating around out there.

In saying so, Buffett was tipping his hat to the late, great University of Chicago economist Milton Friedman, who famously wrote that "Inflation is always and everywhere a monetary phenomenon, in the sense that it cannot occur without a more rapid increase in the quantity of money than in output."

What's wrong with that?
The big danger with inflation is that it erodes the value of both your savings and your paycheck. Inflation means that you have to earn more to buy the same stuff you had been buying. If you've been saving up cash for a big purchase, that same inflation can keep your goal out of reach for longer.

There's always a chance your paycheck might keep up with increases in what things cost. If it doesn't, though, your true standard of living will decrease as you're forced to prioritize necessities over luxuries.

If you're not actively preparing yourself for inflation's return, odds are you'll be in a world of hurt when it once again rears its ugly head.

What can you do about it?
One of the best weapons you have against inflation may well be your investment portfolio. By owning shares in companies with solid financials, well-supported dividends, and records of raising those dividends, you stand a fighting chance in the battle for your pocketbook. After all, if your investment income stream grows at least as fast as inflation, then what those dividends provide you will remain constant -- or perhaps even improve over time.

Even in these cash-constrained economic times, there are companies that are both financially and operationally strong. Those that are and also reward their shareholders with dividends are the ones most likely to help you combat the coming inflationary storm.

They tend to have a few key characteristics in common:

  • Payout ratios below 60% of earnings mean the companies can both reward their shareholders and reinvest in their operations and growth.
  • Cash flows that exceed 90% of earnings mean the companies are actively turning their accounting profits into cold, hard cash. That's a very strong sign that those dividends can be maintained even if the debt market remains frozen.
  • Dividends that have risen in the recent past mean the companies' Boards of Directors are at least open to further hikes if warranted.

Put those features together, and you wind up with a list of companies like these:


Dividend Growth


Cash Flow Coverage of Earnings

International Business Machines (NYSE:IBM)








Abbott Laboratories (NYSE:ABT)




United Technologies (NYSE:UTX)




Emerson Electric (NYSE:EMR)




Texas Instruments (NYSE:TXN)




Sysco (NYSE:SYY)




Get ready for the storm
If you believe Buffett's proclamation that significant inflation is headed our way, then you need to take action now to prepare yourself before it hits. At Motley Fool Income Investor, we're taking advantage of the market's current crisis to prepare ourselves for the next one. Thanks to the stock market's weakness, we're actively stocking up on very strong companies with solid dividends at attractive prices.

When this crisis passes and we move on to the inflation that will follow, we'll be ready for it. If you'd like to be ready as well, then join us today. To learn more or start your 30-day free trial, click here.

At the time of publication, Fool contributor Chuck Saletta owned shares of Intel and Sysco. Sysco is an Income Investor pick. Intel is a Motley Fool Inside Value recommendation. The Fool owns shares and covered calls of Intel and has a disclosure policy.