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Inflation around the world is reaching new highs these days affecting everyone’s purchasing power. In the US inflation has reached its 40-year high at 8.6% while in Canada it is at its 31-year high at 6.8%. One of the easiest methods to counteract this inflationary market is by generating passive income like dividends or by purchasing Canadian stocks to beat inflation and provide enough returns to preserve the purchasing power.
Best Canadian Stocks to Buy during Inflation
5 Best Canadian Stocks to Buy During Inflation Surge in Canada
Due to such high inflation levels many growth stocks these days have failed to generate value this year. However, here are a handful of high-yielding Canadian stocks to buy during inflation that can potentially beat its effects.
Enbridge is an Alberta-based multinational pipeline company that has been enchasing the growth of the oil sector. The inflationary market has been favorable to oil and gas companies, and this sector is one of the strongest ones in today’s market. The energy crisis was one of the driving forces behind such high inflation levels so if the inflation levels elevate further, the oil sector is going to benefit even more.
The best thing about Enbridge is that the company’s earnings are not as volatile as the broader oil market. This is because its revenues are based on the volume of oil that has been transported in North America. The company is enjoying a relatively good time as this year the volume of oil transported has been much greater. Moreover, the dividend yield of 6.49% provided by the company is more or less at par with the country’s inflation level. Besides, the company might also increase its payouts in the coming times. Therefore, Enbridge perfectly fits the buy criteria of the best Canadian inflation stocks.
In this market, it is difficult to find growth stocks that have the potential to rally. Dollarama is one such company that has managed to grow even in this inflationary market. It is one of the largest retail stores in the country that sells items for four dollars or less. The company has been witnessing increased sales these days because due to high inflation and subsequent reduction in the purchasing power many people are cutting down on their budgets and are searching for cheaper alternatives to the items they used to purchase previously.
Dollarama is taking perfect advantage of the market. In the first quarter of this year, the company managed to generate an EPS of $0.47 beating the market’s estimates. Notably, the growth in its EPS was about 30%. Its sales growth was also decent at 12.4% year-over-year with a 7.3% increment in the same-store sales. Moreover, though there was a slight reduction in the gross margin levels by 16 basis points, still its gross margin remained quite solid.
The Bank of Nova Scotia is the third-largest banking company in the country that is offering one of the best yields out of the country’s top six banks. This stock could be an excellent buy in this inflationary market because this bank has got one of the most diversified portfolios amongst all the Canadian banks and derives a substantial portion of its income from overseas operations like the region of Central America or the Caribbean. Moreover, as the main source of the bank lies in the interest differentials, as central banks increase the interest rates more to combat inflation levels, it will be one of the biggest beneficiaries.
The company’s latest financials show its earnings have improved by 27% year-over-year driven by the growth in the mortgage and commercial loans, lower provisions for credit losses, and fees received. Besides, the company also has an excellent track record of paying out dividends and has been increasing its dividend payments in the last 43 years.
4. Royal Gold
The demand for gold never diminishes completely and therefore the gold stocks can also provide a significant hedge against the market inflation. Royal Gold has been fairly successful in beating the market’s expectations over the period and is, therefore, worth a buy. The company has interests in about 187 properties and has been managing 41 mines which apart from producing gold primarily also produce numerous other metals like silver, nickel, cobalt, and zinc.
The company expects to produce around 315,000-340,000 gold equivalent ounces (GEO) this year and for that has projected a realized price of $1800 per GEO ounce if the market remains more or less the same. At the $1800 level the company’s revenue comes slightly higher than the past year but if inflation rises further and the price of gold increases even more then its revenue can increase by a further 15%. Besides, the valuation of this stock is also quite attractive compared to most gold stocks as it is trading at around 25 times its earnings.
Manulife Financial is a Toronto-based multinational insurance and financial services company that is one of the largest life insurance companies in the Canadian region. Like most insurers, it receives recurring revenue and suffers loss only when the insured makes his claim. Insurance expenses are one of the necessary expenses which one continues to incur even when there is an increase in the price levels and Manulife is one of the top insurers in the country that fits the criteria of a perfect buy in this inflationary market.
The company’s financial performance in the past few quarters has been quite good. Besides, it manages about $1 trillion worth of assets indicating it is suitable enough to withstand harsh economic conditions. Moreover, the best part is that it is a dividend aristocrat that makes dividend payments yielding 6.13% which is much higher compared to the payouts provided by most organizations.
Investing in today’s volatile market is a tough job as most growth stocks are tanking. Also, with increasing inflation levels and interest rates, the value of money is also getting diminished every day. Therefore, in such situations investing in stocks like the ones mentioned above that benefit from the inflationary market can be a good move.
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