Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

High Inflation: The Good and the Bad for Canadians

Stock Markets Jun 25, 2022 12:15
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. High Inflation: The Good and the Bad for Canadians

High inflation has direct impact on the everyday lives of Canadians. Thankfully, Canadian investors can position themselves better financially.

The bad in high inflation First, let’s start off with the bad in high inflation. Just when we thought the inflation of 6.8% in April was bad, Statistics Canada reported inflation hitting 7.7% in May 2022, the biggest jump since January 1983. Already Canadians are feeling a lighter wallet at the gas pump, grocery store, and pretty much at every part of our lives. Canadians, particularly, those with many mouths to feed, are concerned their income cannot keep up with the ridiculously high inflation.

The Bank of Canada has been doing its job by raising the key interest rate target three times this year to 1.5%. The central bank essentially indicated it’ll make more hikes if inflation doesn’t get back in line. The inflation rate has a long way to go before it returns to the long-term target rate of 1-3%.

Interest rate hikes will cascade down to all kinds of credit, including mortgage rates, personal/commercial lines of credit, etc. This, in turn, increases Canadians’ borrowing costs and interest expense.

The good in high inflation High inflation leading to rising interest rates aren’t all bad. For example, interest rates we get from our banks for our savings accounts and GICs are also increasing. Bond yields are also rising. This means our emergency funds and lower-risk investments can earn higher interest income.

Canadians who have excess cash to invest for longer term can also benefit from this situation. The stock market is correcting, providing value opportunities in quality dividend stocks like Brookfield Infrastructure Partners (TSX:BIP.UN)(NYSE:BIP).

The global utility stock has long-life, cash-cow infrastructure assets in utilities, transportation, midstream, and data. It’s diversified. It generates quality and sustainable cash flow of which approximately 90% is regulated or contracted and 70% is indexed to inflation. Yes, inflation! So, high inflation speeds up its overall cash flow growth.

BIP’s interest expense are predictable and has little impact from rising interest rates in the near to medium term, because about 90% of its debt is fixed rate.

So far, the dividend stock has corrected more than 16% from its peak and provides a more attractive yield of 3.9% for a defensive utility. To be clear, “defensive” is in terms of the strength of the business and the sustainability of its cash flows. Due to the macro environment, the stock will likely trade cheaper over the next months, providing an even better opportunity to accumulate shares in the wonderful business.

Brookfield Infrastructure is a value stock that targets cash distribution growth of 5-9% per year, supported by healthy cash flow growth.

Canadians’ takeaway While we cannot control if we will get a raise from our jobs to combat inflation, we can target to save a percentage of our after-tax income and invest it in solid dividend stocks, like Brookfield Infrastructure, that pay growing cash distributions.

By buying a basket of quality and diversified dividend stocks at great value in this market correction, Canadians can pretty much guarantee growing investment income to fight inflation and the increased cost of living.

The post High Inflation: The Good and the Bad for Canadians appeared first on The Motley Fool Canada.

The Motley Fool recommends Brookfield Infra Partners LP Units. Fool contributor Kay Ng owns shares of Brookfield Infrastructure.

This Article Was First Published on The Motley Fool

High Inflation: The Good and the Bad for Canadians
 

Related Articles

Meta raises $10 billion in first-ever bond offering
Meta raises $10 billion in first-ever bond offering By Reuters - Aug 09, 2022

(Reuters) - Facebook-parent Meta Platforms Inc said on Tuesday it had raised $10 billion in its first-ever bond offering, as it looks to fund share buybacks and investments to...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email