A Top 2022 Passive Income Pick to Help Beat Inflation in Canada

SmartCentres REIT (TSX:SRU.UN) is a passive income stud that can help Canadians stay ahead of inflation going into another uncertain year.

| More on:
calculate and analyze stock

Image source: Getty Images

Inflation in Canada has been quite a pain for many investors and savers to deal with. Nobody knows if it will go away by the end of 2022 or if it will persist into 2023. That’s why it’s a wise idea to be ready for anything and to ensure you’re balancing the risks of holding too much cash. Indeed, inflation in Canada could be stuck in the 3%-5% range for quite some time, though it is encouraging that the Bank of Canada (BoC) could finally be ready to hike in as little as a few weeks. Arguably, I think the BoC ought to raise rates sooner rather than later, given the risks of staying pat and letting inflation run looks far more severe.

Billionaire activist investor Bill Ackman thinks that central banks need to deliver one huge rate hike, even if it means surprising the markets.

Although Ackerman’s credibility may have taken a hit when his alarmist reaction when the stock market crashed in the early months of 2020, I do think he’s right on the money. The Fed may have been overly dovish, and it may have been a bit of a mistake. Given how unforgiving inflation has been, the Fed may wish to be more aggressive with its fight against higher prices, especially given how much employment has improved over the past year.

Rate hikes versus runaway inflation

Inflation in Canada hasn’t been nearly as bad so far. And although the BoC may raise rates faster than the U.S. Fed, I’d argue that the BoC may still not be hawkish enough. Have they stood pat for too long? It’s hard to say, but one large hike could correct such a mistake, even if the markets don’t appreciate the surprise. At the end of the day, Canadian markets are more likely to follow in the footsteps of the U.S. stock market and moves made by the U.S. central bank. As such, Canadian investors need not worry about too many BoC rate hikes; rather, they should watch the Fed closely as well, which may follow the BoC step-for-step this year.

Like it or not, the Fed is going to play it by ear, tapering and tightening gradually as it sees fit. If they don’t have a more hawkish pivot (some believe they’re not hawkish enough), inflation above the 4% mark could persist through the year. And for Canadian savers or conservative investors who don’t have considerable sums sitting in dividend-paying equities, 2022 could prove to be yet another painful year.

A smart passive income play to stay ahead of inflation

Enter SmartCentres REIT (TSX:SRU.UN), a well-run retail property play behind many strip malls located strategically across the country. Retail REITs were despised during the worst of 2020’s lockdowns. Unlike most other retail REITs, though, Smart really didn’t have anything that was a cause of concern, even as restrictions were put in place. The firm not only housed many quality essential retailers that kept their doors open, but it also housed many liquid retail tenants, most of which were never really at risk of missing a month’s rent. Indeed, Smart did have a few troublesome tenants that had issues, but they were small enough that Smart had no problem keeping its rich distribution intact.

With the economic reopening up from Omicron, expect SmartCentres REIT to continue trending higher. It’s proven its resilience, and as it expands its book into residential, I’d look for long-term appreciation due to the increased quality of the REIT’s adjusted funds from operations (AFFOs). Today, Smart is a best-in-breed retail REIT. In a few years, it’ll be more of a perfect combo of retail and residential. Smart is a great buy, and I’m continuing to pick up shares amid the stock’s multi-year rebound off those lows of 2020.

At $31 and change per share, the 5.9% dividend yield is rich, well-supported, and a great inflation fighter, in my opinion.

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 owns Smart REIT. The Motley Fool recommends Smart REIT.

More on Dividend Stocks

thinking
Dividend Stocks

Should You Buy BCE Stock for its 8.6% Dividend Yield?

Down over 20% from all-time highs, BCE stock offers you a tasty dividend yield in 2024. But is the TSX…

Read more »

grow dividends
Dividend Stocks

How Long Would It Take to Turn $20,000 Into $100,000 With TSX Dividend Stocks?

Here's how high-quality TSX dividend stocks and the power of compound interest can help grow your investments by 400% or…

Read more »

Paper airplanes flying on blue sky with form of growing graph
Dividend Stocks

2 Soaring Stocks I’d Buy Now With No Hesitation

These two stocks may be the most expensive on the market, but they're high for a reason! And I'm still…

Read more »

Hour glass and calendar concept for time slipping away for important appointment date, schedule and deadline
Dividend Stocks

Invest $374.50 Each Month to Create Passive Income of $288 in 2024

Investing a specific amount each month to create passive income this year is possible with monthly dividend payers.

Read more »

Happy retirement
Dividend Stocks

2 Stocks to Help Turn $100,000 Into $1 Million

If you want to reach $1 million, $100,000 can certainly get you there. Even if you invest in some low…

Read more »

warning or alert
Dividend Stocks

Income Alert: These Stocks Just Raised Their Dividends

There's no shortage of companies that raised their dividends recently. Here's a trio of options to consider buying now.

Read more »

Business success with growing, rising charts and businessman in background
Dividend Stocks

Don’t Look Now, But These 3 TSX Stocks Look Poised for a Nice Rally 

Three TSX stocks are in a downtrend amid headwinds. 2024 may be rocky for them, but they are poised for…

Read more »

protect, safe, trust
Dividend Stocks

3 Safe Dividend Stocks to Beat Inflation

These three dividend stocks are excellent buys to beat inflation, given their solid underlying businesses and high yields.

Read more »