Fannie Mae (FNM) and Freddie Mac (FRE) are about to go bankrupt, says 12% Letter editor Tom Dyson.

The bottom line is they are both over leveraged. Waaay over leveraged. They bought $1.7 trillion in assets using only $70 billion of investors’ money. To wipe out investors, mortgage values only have to decline by 1.4 percent. And this has already happened. 

Tom says the best way to protect your portfolio from the fallout of a failing Fannie and Freddie is to invest in high-dividend stocks…

High dividend stocks are by nature defensive stocks. The dividend acts like an anchor and prevents the stock price from falling too far.

But the stocks in the portfolio of my newsletter – The 12% Letter – do more than pay big dividends. These stocks are the safest collection of high dividend payers you will find in this market. The key to this safety? They own valuable real assets and sell things for the lowest possible price.

We’ve made investments in energy. Over the last two years, we made 15 investments in pipelines, natural gas, oil, oil services, electricity, coal, wind farms, and energy finance. We’re showing a profit on 15 out of 15 of these stocks.

We also own fast food, convenience stores, and warehouse retailers. These are our “price leader” stocks like Wal-Mart (WMT) and McDonalds (MCD). These stocks do well when consumers choose price over quality. They are excellent defensive stocks to own in the current crisis.

And we own timber, hydroelectric dams, and rural telecom assets. These stocks – when mixed together – will generate the safest 9% dividend we can find anywhere in the market. (The average dividend yield of the stocks in my portfolio is 9%.)

The government will bail out Fannie and Freddie and assume their debts. This is inflation. It will meet Fannie and Freddie’s trillion-dollar debts by issuing more debt of its own. U.S. government debt will lose its value, and the dollar will keep falling.

The high-yield companies in my portfolio are the perfect stocks to protect your money from the U.S. government’s inflation. These companies own productive assets. Factories are assets. So are trees. So are rural telephone networks.

Denominated in U.S. dollars, the value of these real assets will rise. So your money is safe… much safer than if you left it in the bank or a money-market account.

But the real bonus comes when foreigners lose confidence in U.S. debt. The only way they’ll be able to get any value for their dollars will be if they buy cheap American assets… like farmland, timberland, real estate… and American stocks loaded with real assets. There will be a panic into U.S. real asset and manufacturing stocks at some point in the next 12-18 months.

In sum, there’s more pain to come in financial stocks. But if you buy stocks with big dividends and lots of cheap American assets, your money will be safe and you may even make a profit.

P.S. Tom recommended an interesting company in the most recent issue of The 12% Letter. This company yields 14%. It’s been in business for 84 years, dominates every market it trades in, carries some of the world’s strongest brand names… and it’s only cut its dividend once since it went public in 1956. Click here for more on how these kinds of stocks can pay for your retirement.

Source: Read This for Your Fannie Mae and Freddie Mac Survival Plan