Last week, the Labor Department of the United States announced the Consumer Price Index rose by 4% in May compared to the previous year, which was the lowest increase since March 2021. Although inflation shows signs of slowing down, it is still higher than the Federal Reserve’s guidance of 2%. So, given the inflationary environment, investors can consider buying the following three Canadian stocks that can stand up to inflation.
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Dollarama
Dollarama (TSX:DOL) operates 1,507 discounted retail stores, offering a broad range of consumable products at attractive prices. With rising prices creating deeper holes in consumer pockets, more customers are visiting Dollarama stores, thus driving sales. In the first quarter of fiscal 2024, which ended in April, the company’s sales grew by 20.7%. Solid same-store sales growth of 17.1% and net addition of 76 stores over the previous four quarters drove its sales.
Further, its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) and EPS (earnings per share) grew by 22.1% and 28.6%, respectively. Meanwhile, I expect the uptrend to continue. The company’s management expects to open 60–70 new stores this fiscal year, with a target of reaching a store count of 2,000 by 2031. Besides, the company continues to strengthen its direct sourcing capabilities and improve operational execution to deliver compelling value to its customers, thus driving its same-store sales. So, I believe Dollarama would be an excellent buy in this inflationary environment.
Pizza Pizza Royalty
Pizza Pizza Royalty (TSX:PZA) owns and operates 743 Pizza Pizza and Pizza73 brand restaurants through its franchisees. The company collects royalties from its franchisees based on their sales. So, inflation will have a minimal impact on its financials. Meanwhile, the pizza franchise has delivered impressive quarterly performance, with its same-store sales and adjusted EPS growing by 13.6% and 16.2% in the March-ending quarter, respectively.
With the reopening of non-traditional restaurants, value messaging, brand promotions, and renovation of its restaurants, I expect the company to post solid same-store sales growth in the coming quarters. Besides, the company plans to increase its restaurant count by 3-4% this year, which could boost its financials. Amid its financial growth, the company raised its monthly dividend earlier this month by 3.5% to $0.075/share, the seventh increase since April 2020. Besides, its forward yield currently stands at 6.05%, making it an attractive buy.
Enbridge
My final pick would be Enbridge (TSX:ENB), which is involved in transporting oil and natural gas across North America. With around 98% of its adjusted EBITDA underpinned by cost-to-service or fee-based contracts, commodity price fluctuations will have a minimal impact on its financials. Besides, approximately 80% of its adjusted EBITDA enjoys inflation protection, thus lowering the effect of rising prices.
The company also continues its $17 billion secured capital program, with low-risk commercial frameworks covering it. The management expects to put $6.4 billion worth of projects into service over the next two years while the remaining $10.6 billion will be deployed in 2025 and afterward. Amid these growth initiatives, the company’s management expects its adjusted EBITDA to grow at a CAGR (compounded annual growth rate) of 4-6% through 2025 and around 5% after that.
Given its stable, regulated business, high dividend yield of 7.18%, and attractive NTM (next 12 months) price-to-earnings multiple of 16.7, I believe Enbridge would be an ideal buy in this inflationary environment.
