2 Dividend Stocks to Beat Inflation

These two TSX dividend stocks can be excellent holdings to beat inflation, even as inflation cools down.

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After the series of aggressive interest rate hikes, it was only a matter before the slower economic activity would cool down inflation. The Bank of Canada has set the target guidance of achieving 2% inflation.

In December 2023, Canada’s annual inflation rate was 3.4%. By January, analysts expected it to cool down to 3.3%. However, Canada’s annual inflation rate decline was better than analysts’ expectations at 2.9%. Despite beating analyst expectations, there is still a long way for Canada’s annual inflation rate to match the federal bank’s 2% guidance.

Leaving your savings parked as cash in a savings account means inflation will only deteriorate its value. With interest income still lagging behind the cooling inflation rates, it might be better to consider other ways to use your savings.

One way to protect your capital can be investing it in income-generating stocks with higher returns than the inflation rates deteriorating their value. To this end, dividend investing can be an excellent approach.

I will discuss two top Canadian dividend stocks you can consider for this purpose.

BCE

BCE (TSX:BCE) is a $41.92 billion market capitalization giant in the Canadian telecom space. BCE stock is a popular stock for dividend investors. It has a solid business with a great defensive appeal.

BCE generates strong cash flows due to the essential nature of its underlying business. In an age where people always need to be interconnected, telecom companies like BCE stock are going to become increasingly important.

BCE has recurring revenues that allow it to fund capital expenses and grow its dividends. The Montreal-based telecom company has increased its payouts for the last 16 years, making it a Canadian Dividend Aristocrat.

It has also invested in strengthening its 5G infrastructure and expanded its broadband internet services to more customers. As of this writing, BCE stock trades for $45.95 per share, boasting a higher-than-usual 8.68% dividend yield that you can lock into your portfolio.

Enbridge

Enbridge (TSX:ENB) is another popular Canadian dividend stock. The $103.69 billion market capitalization giant operates in a cyclical industry. However, Enbridge stock has a great defensive appeal due to its business model.

Typically, energy companies are significantly impacted by the volatile commodity prices of hydrocarbons. Enbridge stock has a business model that protects it from price volatility.

Enbridge owns and operates one of the most complex and extensive pipeline networks in North America. It is responsible for transporting a lot of the crude oil, natural gas, and natural gas liquids produced and consumed in the region. Instead of charging based on the price of the commodities it transports, Enbridge generates revenue based on the volume.

Despite industry headwinds, Enbridge stock has sustained excellent cash flows that it has used to grow dividends for over two decades. As of this writing, Enbridge stock trades for $48.78 per share and pays its investors dividends at a juicy 7.50% dividend yield.

  • We just revealed five stocks as “best buys” this month … join Stock Advisor Canada to find out if Enbridge Inc. made the list!

Foolish takeaway

Dividend investing can be an excellent way to use your savings to generate inflation-beating returns. If you build a solid dividend income portfolio in a Tax-Free Savings Account (TFSA), you can enjoy the passive income without incurring taxes on it.

If you also reinvest the dividends through a dividend-reinvestment program, you can accelerate your tax-free wealth growth through the power of compounding.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Enbridge. The Motley Fool has a disclosure policy.

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