Inflation has been rough on us all.
The Consumer Price Index just jumped 7.9% in February – its biggest jump since January 1982, according to the U.S. Labor Department. Worse, according to Moody’s Analytics, the average household is paying an additional $296 a month.
“U.S. inflation is at its highest level in about four decades,” Moody’s said. “Much of the inflation has been caused by pandemic-generated supply constraints, although Russia’s invasion of Ukraine is creating additional constraints that will push inflation higher and for longer than thought before the assault began.”
Rising Inflation is a Major Concern
It’s a major concern, especially for retirement age investors.
According Global Atlantic Financial Group survey, investors ages 59 to 75 are concerned that inflation will wreak havoc on their investments, as noted by CNBC. About 71% of those surveyed believe it will negatively impact them.
“Moreover, 46% of investors said they believe rising inflation and low interest rates will make it more difficult to have steady income in retirement. Of those invested in fixed income, 46% said they are concerned about low interest rates affecting their retirement income,” added CNBC.
So, what’s the best way to protect your portfolio from sky-high inflation? Try these stocks.
WP Carey (WPC)
When inflation is running hot, take a look at WP Carey (WPC).
WPC is a net lease real estate investment trust (REIT) that buys properties directly from companies, and then leases them back to an oftentimes reliable tenant.
It’s also called a lease-back.
Or, where “a company sells its real estate to an investor like W. P. Carey for cash and simultaneously enters into a long-term lease. In doing so, the company extracts 100% of the property’s value and converts an otherwise illiquid asset into working capital to reinvest in its business or pay down debt, while maintaining operational control,” as noted by the company.
What’s interesting about WP Carey is nearly all of its rental agreements include contractual rent increases for inflation, according to BNK Invest. In fact, about 60% of the agreements are tied to the consumer price index.
Well diversified with industrial, warehouse, office, retail, and self-storage, the REIT also pays a dividend yield of 5.3%.
In addition, according to the company, “We also remain uniquely poised to benefit from inflation, with the vast majority of our CPI-linked leases scheduled for rent increases over the next few quarters. Consequently, we believe W. P. Carey currently offers one of the best combinations of external and internal growth across the net lease sector, in addition to an attractive dividend yield.”
Costco Wholesale (COST)
With a dividend yield of 0.61%, COST sells needed products that consumers must have no matter how well or how poorly the economy is doing. In fact, no matter how steep of a downturn, consumers still need soap, detergent, toothpaste, toilet paper, food, etc. All can help provide a steadier and far more predictable cash flow for COST.
Even better, earnings are solid.
For its second quarter, the company saw EPS of $2.92 on sales of $51.9 billion. That was better than expectations for EPS of $2.76 on sales of $51.53 billion. Same store sales were up 11.1%.
In addition, as reported by Barron’s: “’Near-term, the market may be underestimating the strength of Costco’s position with higher inflation’ wrote Jefferies analyst Stephanie Wissink, given that the overall results confirmed the company’s ability to handle this and other supply-chain related headwinds. She has a Buy rating and $650 target on the stock.’”
Fidelity Stocks for Inflation ETF (FCPI)
Another great way to protect your portfolio from inflation is with an ETF, such as the Fidelity Stocks for Inflation ETF (FCPI).
With an expense ratio of 0.29%, the ETF seeks to provide returns that correspond to the performance of the Fidelity Stocks for Inflation Factor Index.
Normally investing at least 80% of its assets in securities included in the Fidelity Stocks for Inflation Factor Index, which is designed to reflect the performance of stocks of large and mid-capitalization U.S. companies with attractive valuations, high quality profiles and positive momentum signals, emphasizing industries that tend to outperform in inflationary environments,” according to Fidelity.
At the moment, some of its top holdings include Apple, Microsoft, Nucor Corp., Marathon Oil Corp., APA Corp., Olin Corp., and Procter & Gamble to name a few. Not only do you get solid diversification with the ETF, you pay a fraction of what you’d pay for a single holding in the ETF.
Kinder Morgan (KMI)
High dividend stocks like Kinder Morgan are a great way to offset inflation.
After all, Kinder Morgan is one of the largest infrastructure companies in North America. It owns and controls oil and gas pipelines and terminals. With a dividend yield of 6.24%, the company recently said “it was budgeting a 3% dividend boost this year,” according to Barron’s.
The company also continues to be one of the most stable, with enough cash cover its dividend.
Also, much like the rest of the energy sector, it’s starting to pivot toward lower carbon energy sources, which could provide it with solid growth opportunities.
In fact, Kinder Morgan just announced “the receipt of the necessary commercial commitments to move forward with the permitting and construction of a renewable diesel hub in Southern California. Upon completion, the Southern California hub will be the first of its kind in the United States to transport batches of renewable diesel by pipeline with no resulting loss of product to trans mix,” as noted in a company press release.
NextEra Energy (NEE)
NextEra provides a basic need service –electricity.
Two, the company has generated a positive total for investor in 19 of the last 20 years. Three, the company carries a dividend yield of 2.07%. Analysts seem to like the NEE stock, too. BMO Capital analysts for example raised their price target on NEE to $98 from $89 with an outperform rating on the stock.
Earnings have been solid.
“NextEra Energy was successful in executing our 2021 initiatives, ending the year with excellent financial and operational results,” said Jim Robo, chairman and CEO of NextEra Energy. “We grew adjusted earnings per share by more than 10% from 2020 and delivered a total shareholder return of more than 23%, significantly outperforming the S&P 500 Utilities Index and continuing to outperform both the S&P 500 and S&P 500 Utilities Index in terms of total shareholder return on a three-, five-, 10- and 15-year basis.”