Central banks have dragged down inflation by quite a bit over the past few quarters. Despite the efforts and rate hikes, it still doesn’t seem like we’ve made any progress at all. When you go into the local supermarket, odds are you’re still feeling grossed out by the price of milk and other necessities.
Undoubtedly, the rate of inflation has come down, but the price increases put in over the past year and a half have remained.
The inflation storm may be winding down, but don’t get your rate-cut hopes up yet
Moving ahead, we’ll all have to “get used” to the higher prices or speak with our wallets. Indeed, many folks have already let their wallets do the talking for them. Whether we’re talking about trading down to generic or private-label brand alternatives, shopping at discount retailers, or just foregoing a certain good altogether.
Only time will tell where prices go from here. I’m inclined to believe that the Bank of Canada could be gearing up for rate cuts in the second half, assuming that more progress is made on the inflation front. There are risks of cutting rates ahead of the Federal Reserve south of the border, however.
Not only could inflation be allowed to creep higher (perhaps above 3%) again, but the Canadian dollar could also take a further hit relative to the greenback. Indeed, the last thing the already weak loonie (going for around US$0.73 at the time of writing) needs is to fall further in value versus the U.S. dollar. Either way, investors should prepare accordingly for what hopefully will be the last innings of the battle with inflation.
In this piece, we’ll check in with one intriguing dividend stock that I think can help you stay ahead of the price hikes or a potential inflation comeback. Further, they can also help you get ahead of inflation as yields remain considerably higher than where inflation sits today (a hair shy of 3% for March 2024).
Telus
Telus (TSX:T) is a telecom firm that’s been down more than 34% from its short-lived 2022 all-time high. Undoubtedly, industry-wide pressures and higher rates bear part of the blame for the vicious bearish plunge in the dividend darling. If you’re a passive-income investor who’s committed to investing for the next five years or more, T stock seems like a bargain while its dividend yield sits at 6.68%.
While I don’t know exactly when the Bank of Canada will start cutting rates, every rate cut, I believe, stands to slightly weaken the headwinds facing firms like Telus. The telecom firm needs to spend a great deal to improve its wireless speeds and coverage. As costs of borrowing fall, I’m sure the telecom firms won’t complaint!
Either way, I think the stock will probably be well above the $35 level five years from now, likely with a dividend yield closer to 5% than 7%. So, if you seek big passive income for the long haul, I think you have to consider Telus as it battles through the remainder of industry headwinds. Profits may have taken a hit, but there may be relief in sight as rates peak and fall gradually over the next two to three years.
Either way, I’m a big fan of Chief Executive Officer Darren Entwistle and think he has what it takes to take Telus to higher highs after a treacherous past two years. Things are starting to look up, even if most other investors are inclined to believe T stock will just keep nosediving to lower multi-year lows.
Bottom line
With such a magnificent, well-covered dividend, those who still have sticker shock after the inflationary surge may wish to nibble on T stock while the yield is still above 6.5%. It’s not guaranteed to stay at these heights once rates come down to Earth.
