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Inflation is expected to remain to the upside for a while, and non-core costs such, as food, energy, and shelter costs continue to put upward pressure on prices. Inflation has been high for the past year and a half and could continue to run on the high side for 2023. Regardless of how long inflation remains an issue, 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. The following stocks have pricing power and pay a dividend yield, which can help consumers reduce the impact of inflation.
Pricing power remains important, as the ability to marginally increase prices, at least in line with inflation, and continue growing a business remains key to long-term business sustainability.
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 15. 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, especially as global macroeconomic conditions and tailwinds, remain favorable for prices.
Kinder Morgan benefits from continued profitability mainly due to the fact that the energy has been in ample demand from the market. This demand largely stems from higher consumption driven on the back of a continued higher GDP, and continued improvements to consumption numbers. This is despite the fact that energy prices are down, and margins for midstream companies have been under pressure.
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.
Kinder Morgan’s importance to the economy combined with steady managerial guidance, means that the company is relatively well placed to overcome the current unsteady market environment. Investors can consider the stock if they are looking for steady dividends and a relatively safe stock.
Southern Copper Corporation (SCCO): Southern Copper operates several mines across the world, including in countries such as Mexico, Chile, and Argentina, and engages in mining, exploring smelting, and refining copper.
Under the current environment, copper prices continue to remain elevated compared to before 2019, which means that despite prices coming off their recent high they are still high enough to ensure profitability and dividends aren’t under threat anytime soon. Higher prices will result in improved earnings for Southern Copper. Copper demand also, remains relatively robust, as industries that primarily require copper stay on a reasonably firm footing. But more importantly, due to capacity and global production issues, there is a continued copper shortage, which could see copper prices increase to record highs in 2023, especially if copper reserves decline.
Although demand from China remains a concern, mainly due to spending on infrastructure and real estate slowing down, 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 5.0% dividend yield and trades at a modest valuation of 7 P/E, with a forward P/E of 5.
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, which is especially important considering that in 2023 increasing interest rates will continue to pressure purchasing power.
More importantly, in a rising interest rate environment, insurance providers tend to benefit, as they gain from their float, this should help improve cash flow, which in turn could benefit the interest yield.
Consider Manulife, if you’re looking for a blue-chip stock, with consistent cash flow that is not volatile, with a beta of only 1, making it perfect for a long-term investors, and retirees who want something they can invest in and forget.
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