By JACK HOUGH
Treasury inflation-protected securities offer meager interest: 0.9% on 10-year issues, versus 3.2% on standard bonds of the same duration. The tradeoff, of course, is that the principal is adjusted for the rate of inflation, keeping investors current with the cost of living, right?
Maybe not. The inflation measure underpinning TIPS has shown a 3.2% price increase over the past year. That's the biggest increase since October 2008, and it's higher than the 2.4% average for rolling 12-month periods since 2000. But gasoline now costs U.S. drivers 38% more than a year ago, according to the Department of Energy. Employer health care costs are poised to rise 8.5% next year, according to a recent report by PricewaterhouseCoopers. Butter--humble butter--is up 23% in a year. Who's to tell a long-distance-driving, health-plan-sponsoring, butter-loving business owner that his costs have climbed only 3.2% in a year?
Cynics have long argued that government inflation statistics are rigged to understate cost increases. I find little evidence for that claim. But no inflation measure can track the cost of living for everyone using the same basket of goods and services. A family putting two kids through public college, the cost of which has increased at more than three times the rate of inflation over the past decade, probably won't care that bananas have gotten cheaper over the past three years. A childless vegan might.
Here's an alternative for investors seeking inflation protection: shares of companies whose goods and services we spend plenty on. Soaring prescription costs will be a little easier to swallow is shares of your drug maker are rising, too. Pumping gas might feel like less of a loss if your oil driller's stock is pumping out quarterly payments. Below are three candidates with dividend yields over 3%, or more than triple the yield on those 10-year TIPS. And whereas TIPS coupons are locked in for the life of the bonds, dividends for these companies have grown in recent years.
Dividend yield: 3.7%
Johnson & Johnson
Dividend Yield: 3.4%
Shares of Johnson & Johnson (JNJ)
Dividend yield: 3.2%
Public Storage (PSA)