After months of worry, inflation is finally here. Canada’s official inflation rate climbed to 3.4% last month, the highest rate in more than a decade. The prices of basic consumer goods such as food, energy, shelter and fuel are all rising simultaneously. This sudden spike in inflation could impact the stock market and house prices.
Investors must consider the impact and the longevity of these inflationary pressures. Here’s a closer look.
How long will inflation last?
Economists and investors all agree that inflation is significantly higher in 2021 than in previous years. However, the debate now centers on whether this inflation is here to stay or transient.
Some economists believe inflation is a rebound from last year, when demand was suddenly pushed down by the pandemic and global supply was in excess. After all, the price of crude oil temporarily dipped below $ 0 last year when people stopped traveling. They believe inflation could persist until next year, but will subside soon after.
However, some investors believe that inflation will likely last much longer and wreak much more havoc. They accuse historic levels of government stimulus of creating an imbalance between supply and demand. Canada, for example, faces a federal deficit of $ 381 billion after all of the stimulus measures last year.
Either way, investors face higher inflation for the foreseeable future. It could also push the Bank of Canada to raise interest rates, which has a negative impact on growth stocks. To protect your portfolio, you may need to consider undervalued stocks that will resist inflation.
Critical businesses with pricing power may simply pass the higher costs on to consumers. This means that healthcare or utility companies could be the best safety nets during inflationary cycles.
Utility giant Fortis (TSX: FTS) (NYSE: FTS) is a first choice. The company is one of the largest producers of electricity in North America. Public services are shielded from economic cycles. Households keep paying their electricity bills when the economy plunges. And utilities can simply increase their prices when inflation rises. In other words, Fortis is isolated from the economy.
Inflation-conscious investors can add Fortis to their portfolio and safely rely on its 3.7% dividend yield. Fortis has great visibility in terms of future cash flows. In fact, the management team has already promised dividend hikes for years to come. The team has managed to increase the dividend every year for the past 46 years.
NorthWest Health REIT (TSX: NWH.UN) is another example of inflation-proof dividend stocks. This real estate investment trust manages medical facilities such as hospitals and clinics across the country. Medical buildings are disconnected from the economy and tend to have multi-year leases that cement future cash flows.
NorthWest’s leases have an average term of 14 years and the stock offers a lucrative dividend yield of 6.2%.
At the end of the line
These tough, inflation-resistant dividend aristocrats deserve a place in your long-term portfolio, even if you’re not worried about inflation.
Looking for more quality inventory? Here is another choice.
Should you invest $ 1,000 in Suncor Energy now?
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool service or advisor. We are Motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer, so we’re posting sometimes articles that may not meet recommendations, rankings or other content. .
Silly contributor Vishesh Raisinghani has no position in any of the listed securities. The Motley Fool recommends FORTIS INC and NORTHWEST HEALTHCARE PPTYS REIT UNITS.