1 Incredible TSX Bargain to Protect Wealth From Inflation

Hydro One (TSX:H) is one great bond proxy for Canadian investors to check out if they fear volatility but want to fight off inflation.

| More on:
edit Safe pig, protect money

Image source: Getty Images

There are plenty of great TSX bargains, even in this hot market that almost every pundit on the Street seems to hate. Even though it seems prudent to wait for a correction before making your next big stock market purchase, you should never discount the insidious impact of inflation. Canadian inflation soared above 4% for the first time in nearly 20 years. Undoubtedly, the eroding effects on cash held in savings accounts have increased.

For how long? Central banks are inclined to believe that inflation will be transitory. If it is, savers need not worry too much. But what if they’re wrong and inflation hits 5% and stays there for a while or perhaps a lot longer? Then investors need to have a game plan on how they intend to adapt to an inflationary environment. Nobody wants to talk about the environment of the 1970s. It was tough on investors and savers. While it’s quite the stretch to compare the early 2020s to the 1970s, one must always be prepared to deal with potential bear-case scenarios.

Protecting wealth from inflation with cheap dividend stocks on the TSX

That means not having as much of an allocation to cash or risk-free assets such as bonds as you would have when inflation was tame at or below the 2% mark. In this piece, we’ll have a look at one of the best TSX stocks that are suitable for beginners looking for a relatively defensive way to protect one’s wealth from the effects of inflation.

Without further ado, let’s have a closer look at the name, and you can decide for yourself if it’d serve as an excellent complement to your existing portfolio well, as inflation runs rampant.

Consider Hydro One (TSX:H), which sport yields of 3.5%, at the time of writing.

Hydro One

Hydro One is probably the closest thing to a monopoly you’ll find these days. The company’s operating cash flow stream is highly regulated. Although the barriers to entry provide the firm with a wide wall surrounding its operating cash flow stream, the degree of regulation has also made it tough to grow.

Still, Hydro One isn’t going to cater to a majority of investors in today’s market, where the appetite for speculation is high. Everyone seeks the sexy stock that promises enormous gains over the near term. You won’t find that with Hydro One. What you will get is a wonderful business at a somewhat reasonable price.

The stock has a low beta and is unlikely to fall as fast as the broader markets in the next correction. With a steady payout and unchallengeable assets, Hydro One is one of the names to stash in your TFSA with wealth that would have otherwise been put in a sub-1% savings account. Sure, a 3.5% yield isn’t too remarkable, nor is the growth profile. But given its stability versus fixed-income securities, Hydro One is a heck of a bargain on a relative basis.

Of course, no stock is guaranteed to hold its value come the next big market crash. At just 2.5 times sales, with a 0.2 beta, though, the odds are high that shares will outperform come the next bearish event that almost everyone thinks will be in the cards by year-end.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Investing

Doctor talking to a patient in the corridor of a hospital.

TFSA: Healthcare Dividend Stocks Are Perfect for Passive Income

Top healthcare dividend stocks like Extendicare Inc. (TSX:EXE) and others can provide huge passive income in your TFSA.

Read more »

TFSA and coins
Tech Stocks

TFSA: Invest in These 2 Stocks for a Legit Chance at $1 Million

Are you interested in building a $1 million portfolio? Invest $20,000 in these two stocks!

Read more »

edit Person using calculator next to charts and graphs

The Top TSX Stock on My Watch List Right Now

Here's why Alimentation Couche-Tard (TSX:ATD) remains a top TSX stock that long-term investors seeking growth and yield will want to…

Read more »

Hourglass projecting a dollar sign as shadow

3 Stocks to Add to Your TFSA ASAP

Given their stable cash flows and solid underlying businesses, these three stocks are excellent additions to your TFSA in this…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

Better Buy: Fortis Stock vs Enbridge

Fortis stock and Enbridge are top dividend stocks on the TSX today. Which stock is better buy for safe dividend…

Read more »

Canadian Dollars
Dividend Stocks

How to Make $1,500 in Passive Income 4 Times a Year

Blue-chip TSX stocks such as Enbridge can enable investors to create game-changing wealth over the long term.

Read more »

Woman has an idea

5 Stocks You Can Confidently Invest $500 in Right Now

Consider putting your surplus cash in these stocks for stellar capital gains.

Read more »

Dividend Stocks

TFSA: How to Easily Turn $10,000 Into $500/Year of Passive Income

You don't need to be a stock market expert to turn $10,000 into a $500 of tax-free passive income. Here's…

Read more »