Yahoo Finance 8.1% Inflation Is a Summer Bummer, But You Can Reduce its Impact
Written by Christopher Liew, CFA at The Motley Fool Canada
The news that high inflation will linger longer is a key concern among Canadians. In a recent survey by Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM), 62% of respondents are finding it harder than ever to save money due to rising inflation. Interestingly, 80% are worried about its impact on summer plans.
Notably, the Bank of Canada warns of a financial crunch, as it projects the elevated inflation rate in 2022 to extend until next year. Yes, people would like to enjoy summer activities, but investing $1,900 or more might be a smarter move.
Essentials, particularly the cost of groceries, are rising rapidly, so you need to hold onto your wallets. If you’re thinking of borrowing, hold that thought too, because interest rates are higher than before. Inflation will surely clip purchasing powers, but not 100% if you have the right strategy to reduce the impact.
Earn extra income, not $0
People would rather keep cash and be liquid instead of taking risks. While cash is the most secure and defensive asset, it earns nothing. However, inflation erodes its value over time. Thus, consider using some of your cash to purchase income-producing assets like stocks to earn extra income.
Investment income or dividends can compensate for increases in the prices of goods you usually buy. On the TSX, selected bank or energy stocks are suitable investments for beginners. You’re not taking significant risk by owning shares of companies in heavyweight sectors.
CIBC and Pembina Pipeline (TSX:PPL)(NYSE:PBA) are low-risk prospects, given their dividend track records. The bank stock has been paying dividends for 154 years, while the energy stock has raised its dividend for 10 consecutive years.
Quarterly income
Carissa Lucreziano, vice-president of CIBC Financial and Investment Advice, said, “Many people head into the summer months with every intention of sticking to a budget but can find it difficult to follow.” Because of this concern, she said it’s important for people to stay on top of their spending.
Investing spare cash in the big bank stock offers financial advantages. If you invest today, the share price is $63.90 (12.12% year to date), while the dividend yield is 5.27%. This $57.2 billion bank pays dividends every quarter, so you can expect cash inflows every three months. Capital gains are possible when the stock price rebounds from the bear (or down) market.
Monthly payout
Unlike most dividend payers, Pembina Pipeline’s payout to investors is monthly. You can incorporate the dividends into your monthly budget. At $47.54 per share, the yield is 5.44%. Assuming you invest $20,060, you’ll earn $100 every month. Current investors are satisfied with the stock’s 27.98% year-to-date gain.
The $26.35 billion pipeline company boasts an enduring business, regardless of the economic environment or market volatility. Pembina derives income from fee-based contracts with clients in North America’s oil & gas midstream industry.
In Q1 2022, both revenue and earnings increased slightly above 50% versus Q1 2021. Pembina is currently in the process of building its network of pipeline capacity. Management expects cash flow from operating activities to exceed dividends and the capital-investment program in 2022.
Alleviate financial stress
Cash provides flexibility, although it can’t escape the risk of inflation. Making some of it work should help alleviate financial stress during inflationary periods.
The post 8.1% Inflation Is a Summer Bummer, But You Can Reduce its Impact appeared first on The Motley Fool Canada.
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Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends PEMBINA PIPELINE CORPORATION.
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