The next selection for the newly launched Inflation-Protected Income Growth Portfolio is safety equipment manufacturer Mine Safety Appliances (MSA 0.36%). While it may not exactly be a household name as a company, it is the go-to supplier of choice for those whose lives depend on its equipment. With that profile, it's a classic "picks and shovels" play -- the company that provides the needed equipment that enables other business to operate.

With a history of rising dividends that stretches back for 41 years, the company's shareholder-friendly behavior predates the Bush dividend tax cuts by a few decades. That makes it highly unlikely the pattern will be derailed just because those cuts are slated to expire. And with a respectable payout ratio of 46%, it has considerable coverage even if things do go bad.

Why it's worth owning in the iPIG Portfolio
To earn a spot in the portfolio, a company has to pass a series of tests related to its dividends, its balance sheet and valuation, and how it fits from a portfolio diversification perspective.

Dividends:

  • Payment: The company's annual dividend currently sits at $1.12 a share, a yield of around 2.9% based on Friday's closing price.
  • Growth history: The company has paid higher dividends every year for over four decades. In addition, it is in the process of paying a one-time special dividend this year to take advantage of the low current tax rates on dividends .
  • Reason to believe the growth can continue: With a payout ratio of 42%, the company retains over half of its income to reinvest for future growth. Additionally, since its cash flow statement indicates that its earnings are very well covered by cold, hard cash, there's little reason to suspect the trend is at any near-term risk from a financial hiccup.

Balance sheet and valuation:

  • Balance sheet: A debt-to-equity ratio of 0.62 indicates that the company does use debt, but hasn't over-leveraged itself to the point where a financial hiccup would derail it.
  • Valuation: By a discounted cash flow analysis, the company looks to be worth around $1.7 billion, making its recent market price of $1.5 billion look reasonable. Of course, there's some risk involved. For instance, if the economy stays weak, folks may look to stretch the replacement cycle on their safety equipment, putting a damper on sales.

Diversification fit:
The first picks for the portfolio included:

...making this safety equipment provider a decent fit.

What are the risks?
Of course, no investment is without risks. In Mine Safety Appliances' case, its very name highlights a key risk -- mining. As the weakness in coal miners Arch Coal (NYSE: ACI) and Alpha Natural Resources (NYSE: ANR) illustrates, coal isn't quite as dominant as it once was. As a result, Mine Safety Appliances needs to continually innovate to assure its products reach as many folks needing safety gear as possible.

And while Mine Safety Appliances isn't solely reliant on mining, much of its business does depend on other cyclical industries like construction. As heavy construction equipment maker Caterpillar's (CAT 0.07%) recent warning of weakness in the market indicated, the tough times aren't quite over yet.

Additionally, Mine Safety does rely on external partners like Grainger (GWW 0.27%) to distribute its wares. While that sort of model can help a company to get broader distribution reach, it does add a layer between the business and the ultimate consumers of its products. In industries where people's lives are on the line, the closer the links between suppliers and customers, the better for all involved.

Still, in spite of those risks, Mine Safety Appliances looks capable of continuing its trend of directly rewarding its shareholders through dividends for the risks they take by investing in the company's stock.

What comes next?
When the Fool's disclosure policy allows, I plan to buy Mine Safety Appliances stock for the Inflation-Protected Income Growth portfolio, as long as its share price remains below $42. I expect to invest around $1,500 in the selection, giving it a 5% allocation in the portfolio, with 75% of the portfolio still remaining cash. Watch my article feed for details of the next pick, coming soon.

Also, to score the performance of this pick, I've made an outperform CAPScall on the stock at Motley Fool CAPS, putting my All-Star ranking on the line along with the plan to invest cold, hard cash.