Inflation came in hotter than expected in May, as food, energy, and shelter costs put upward pressure on prices. Inflation has been high for the year and could continue to run on the high side for several more months. Regardless, an inflationary environment is likely to continue for much longer in general, as the Fed slowly normalizes policy. As a result, many people are worried they may lose purchasing power as inflation eats into their savings. In the meantime, investors can consider the following stocks as a hedge in their portfolios to protect their savings. These following stocks have pricing power and pay a dividend yield, which can help consumers reduce the impact of inflation.
Four stocks to consider:
AT&T (NYSE: T) AT&T is a company that provides a range of telecommunication services, including mobile and internet services, and is the largest telecommunications company in the United States. It could be a stock you consider part of your portfolio to help weather the current inflationary environment. AT&T currently provides a yield of 5.3% and trades at a relatively moderate valuation of 8 price-to-earnings (P/E). Analysts expect earnings-per-share to rise by 8-10% for the year, which would make the current valuation relatively cheap compared to the broader market. Furthermore, telecommunication companies have some pricing power, which would generally allow them to increase prices as inflationary pressures affect margins. Finally, AT&T should also benefit from 5G as more and more consumers move away from their current 4G plan.
Kinder Morgan (NYSE: KMI) Kinder Morgan is an American midstream company that operates four segments: Natural Gas Pipelines, Product Pipelines, Terminals, and C02. The Natural Gas Pipelines segment owns and operates intra and interstate pipelines, gathering systems, and processing/treatment facilities. The Product Pipelines segment deals in refined products. The Terminal segment deals in liquid and bulk terminals. The stock currently provides a dividend yield of 5.75% and has a forward P/E of 20. Midstream companies, especially those who own and operate storage and terminals for LNG, should benefit from the current environment as natural gas demand continues to increase.
It should be noted that higher energy prices don’t directly affect Midstream companies, which rely more on volume than price. While demand for oil should come down from its pandemic high, which could affect volume, the overall market remains relatively robust as the economy continues to normalize. The good news is that midstream companies tend to have relatively stable cash flow and are a safer bet than energy companies, which can be affected by large price fluctuations.
Southern Copper Corporation (NYSE: SCCO): Southern Copper engages in mining, exploring, smelting, and refining copper. Under the current environment, copper prices continue to remain elevated. Higher prices will result in improved earnings for South Copper. Southern Copper operates several mines across the world, including in countries such as Mexico, Chile, and Argentina. Copper demand remains relatively robust, as industries that primarily require copper stay on a reasonably firm footing. Although demand from China remains a concern, demand from the rest of the world remains steady. The stock currently trades at a forward P/E of 15, with a dividend yield of 8%. Considering the environment of inflation and low-interest rates, an 8% yield is very generous. On the other hand, if copper prices fall, the stock may be negatively affected, and the dividend may be cut to a lower. Southern Copper could just be the stock that proactively hedges your portfolio during these times.
Manulife Financial Corporation (NYSE: MFC) Manulife provides various financial products in Asia, North America, and Worldwide. They operate multiple segments Wealth Management, Insurance, and Annuity Products, and other Corporate Services. Manulife’s primary segment is its insurance division, and insurance products tend to hold up pretty well when inflation is running hot. On top of an inflationary adept business, Manulife offers a 5.7% dividend yield and trades at a modest valuation of 3.8 P/E. Although the insurance and wealth management industry is slow-moving, it should benefit from the inflationary environment. Insurance also tends to be robust in economic downturns as well. All in all, the business is well-suited for the current climate.
Kinder Morgan is a part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.