Kick Interest Rates to the Curb With These 2 Passive Income Stocks

These valuable dividend aristocrats are the perfect passive income stocks. High dividend yields will help beat back rising interest rates.

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Canadians got an unpleasant surprise when the Bank of Canada raised interest rates more than expected. We now have a base rate at 4.75%, and with inflation hitting just 3.4% in May, it looks like we could see more rate rises in the near future.

This is, in short, stressful. Weren’t we supposed to be getting over this by now, you might be wondering? Well, I don’t have a crystal ball. But what I do have is knowledge about how to push back against those rising interest rates.

Consider passive income stocks

Passive income stocks are a great way to combat inflation and interest rates. If interest rates are 4.75%, then you need a passive income stock that has a yield that could provide higher than 4.75%. Sounds simple, right? But there are certainly other points to consider.

If you need the cash invested in the near future, then I wouldn’t recommend investing in only one or two passive income stocks. Instead, speak with your financial advisor about where to store that money. But if you have some savings set aside that you wish to invest for the next year, then you can use that to create passive income through a dividend stock investment.

By doing this, you give your investment time to recover from the current market scenario. Yet at the same time, you’ll be collecting passive income to help you beat back interest rate hikes. Coupled with a solid budgeting strategy, you should be able to sail through the rest of the volatile market.

2 passive income stocks to consider

When you’re choosing passive income stocks, there’s one thing that needs to be safe: the dividend. You don’t want your dividend to suddenly get sliced in half, or go away altogether! What’s more, you certainly don’t want to see your returns fall further and further when the market starts to recover.

In that case, I would choose dividend aristocrats. These are dividend stocks that have raised their dividend each year for the last five years or more. These stocks have therefore gone through a very volatile last five years, and have continued paying out during that time, increasing along the way. And there are two that come to mind.

Aecon Group

Aecon Group (TSX:ARE) is one of the top dividend aristocrats held by exchange-traded funds (ETF) such as iShares. Yet, the construction company currently remains incredibly undervalued, according to analysts. The sales of its Ontario roadbuilding business, along with a stake in a Bermuda airport, should provide stellar growth in the next few years. There is therefore an improving risk-versus-reward scenario as demand continues for these essential stocks in the infrastructure business.

Aecon stock currently holds a dividend yield at 5.99%, as of writing. It also provides a significantly more valuable price-to-earnings (P/E) ratio compared to its peers at 19.6 times earnings. Shares remain down 9% in the last year, though up 27% year to date. So you could be looking at a strong recovery underway already.

Great-West Lifeco

Another of the passive income stocks to consider is Great-West Lifeco (TSX:GWO), also a dividend aristocrat and a large stake in ETFs like iShares. Also similarly to Aecon stock, it’s one of the passive income stocks that’s been bringing in cash to help fund its way through this downturn. The sale of its U.S. wealth management company Putnam Investments to Franklin Resources provided a US$1.8-billion influx of cash.

Great-West stock is now seen as an outperformer in the near future, especially after shedding Putnam, which had been a long-time underperformer, according to analysts. So now, Great-West stock looks valuable trading at 14.2 times earnings, compared to past P/E ratios. Therefore, grab onto that 5.59% dividend yield while it trades up 19% in the last year, and year to date!

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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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