In what may be an early sign of things to come for the economy, the U.S. Treasury recently auctioned off 4.5-year Treasury inflation protected securities (TIPS) with a high yield of -0.55%. TIPS are investments that protect investors from inflation by having an adjustable par value based on the level of inflation. A negative yield on TIPS means that if the rate of inflations does not remain positive for the next five years, investors will be paying the government to hold these bonds.

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One of the better ways to protect yourself from inflation while earning a positive yield is to look into commodities. Commodities possess two characteristics that are generally desirable in this type of economic situation: a high correlation with inflation and the ability to pass price increases on to end users. For instance, in the oil and gas sector, increases in oil prices can be passed rather easily on to consumers due to the heavy reliance of consumers on oil and gas.

In addition, since oil is priced in U.S. dollars, should the dollar continue to weaken, then naturally, oil prices should rise. The major catalyst for further weakening of the dollar will be the Federal Reserve announcement regarding quantitative easing 2 (QE2) expected in the first week of November. Many are expecting QE2 to be in the range of $1 trillion to $4 trillion dollars.

With that said, here are some of the top dividend paying oil and gas companies:

Ticker Company P/E Dividend Yield
PWE Penn West Energy Trust 38 4.69%
SE Spectra Energy Corp. 16.61 4.24%
COP ConocoPhillips 10 3.66%
CVX Chevron Corp. 10.02 3.42%
STR Questar Corporation 7.51 3.35%
ECA EnCana Corp. 9.7 2.90%

EnCana Corp.
Based out of Calgary, Alberta, this natural gas company currently trades with a trailing P/E of 9.7 and a dividend yield 2.90%. Year-to-date, the stock is down 15% due to the low price of natural gas. However, because natural gas hasn't participated in the overall commodity rally this year, there may be a case that this is the sector that has the most to gain should the U.S. lose control of inflation.

The Bottom Line
Inflation is one of the major concerns facing investors on the horizon. Investors heavy in cash and bonds may want to look for alternative ways to utilize their cash to hedge against a potentially dangerous scenario. (For related reading, take a look at How To Invest In Commodities.)

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