The current economic landscape reveals mounting indicators of persistent inflation, drawing attention to a “no-landing” scenario—a situation where the economy continues to grow without entering a recession. This scenario, while appearing beneficial at first glance, invites concerns about the resurgence of inflation due to substantial federal government spending, which is projected to exceed $2 trillion more than its income. Such extensive fiscal policies inevitably inject more money into circulation, stimulating demand and driving consumer prices higher. The implications of a prolonged “no-landing” environment include the risk of rising inflation that could challenge the Federal Reserve’s efforts to stabilize the economy.
Recent developments reinforce the notion that inflationary pressures are almost certain to return. Significant events include escalating oil prices linked to geopolitical tensions in the Middle East and recent labor strikes that threaten supply chain stability. In addition, a robust jobs report indicates notable wage growth, further adding to inflationary fears. Jay Powell, the Federal Reserve Chair, seems cognizant of these risks, as evidenced by his recent comments that tempered market expectations for aggressive rate cuts. Futures markets now project minimal interest rate reductions on the horizon, suggesting that the Fed anticipates ongoing inflation challenges and is wary of adopting a more dovish policy stance in the near term.
Investors are now seeking dividend stocks that can benefit from the anticipated economic growth while also offering protection against inflation. Notably, one promising sector in this context is natural gas. Recent actions by China, including a substantial stimulus plan, are expected to drive up gas demand, given China’s status as the world’s largest gas importer. Furthermore, the energy market has demonstrated a tendency to find stability at lower price points, with natural gas currently testing its $2 price floor. This market dynamic creates favorable conditions for investing, particularly in dividend-focused stocks that can take advantage of the improving economic backdrop.
Representing a compelling option within this landscape is the Alerian MLP ETF (AMLP), which yields an impressive 8% dividend. The fund contains master limited partnerships (MLPs) that generate revenue from the transportation and storage of oil and gas. MLPs typically perform optimally in stable or rising energy price environments, and as commodity prices increase, so do their dividends. This correlation, termed the “Dividend Magnet,” means that as AMLP’s payout rises, its share price is likely to follow suit, enhancing both income and capital appreciation for investors. Additionally, AMLP eases the tax burden associated with MLP investments, simplifying reporting obligations for investors.
Another noteworthy investment is EQT Corporation (EQT), especially in the early stages of a natural gas price rally. EQT has significantly low breakeven costs and a vast portfolio of nearly 4,000 drilling sites, positioning it advantageously within the Appalachian Basin. Following a strategic $14 billion acquisition of Equitrans Midstream, EQT is well-equipped to capitalize on operational efficiencies and increased production potential, aligning itself neatly with burgeoning gas demand. Furthermore, natural gas—portrayed as a cleaner alternative to other fossil fuels—possesses longevity as a preferred energy source during the global transition toward renewable energy.
Observing the historical trend of EQT’s dividend performance, it becomes apparent that stock prices often align with dividends over time, effectively making it another “Dividend Magnet.” Currently, EQT’s dividend is on a significant upward trajectory, enhancing its investment appeal despite the stock being below its previous peak. Coupled with an expected increase in natural gas output fueled by rising power demands, EQT appears to be a robust buying opportunity. For investors concentrated on dividend income and growth potential, both AMLP and EQT showcase promising prospects amidst the prevailing challenges of inflation and market volatility.
