Canada’s annual inflation rate fell to 2.7% in June compared to 2.9% in May. Month-over-month, inflation fell 0.1%, the first deacceleration in Canada’s inflation since December. Despite the recent decline, the annual inflation rate remains higher than the central bank’s guidance of 2%. Meanwhile, investors can hedge against inflation by acquiring quality dividend stocks, which will generate a stable passive income. Here are three of my top picks to help you beat inflation.
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Enbridge
Enbridge (TSX:ENB) owns and operates a pipeline network that helps transport oil and natural gas across North America. It is also strengthening its presence in natural gas utilities and renewable energy resources. The company is less exposed to commodity price fluctuations, with 98% of its earnings generated from cost-of-service or take-or-pay contracted assets. Further, around 80% of its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) is inflation-indexed, thus shielding its financials against rising prices.
Further, Enbridge has acquired two utility assets in the United States from Dominion Energy and is working on acquiring the third facility. These acquisitions could make Enbridge North America’s largest natural gas utility company. Further, it is continuing its $25 billion secured capital program by investing $6-$7 billion annually, expanding its midstream, utility, and renewable asset base. Supported by these healthy growth prospects, I believe Enbridge is well-positioned to continue paying dividends at a healthier rate.
The company, which has raised its dividend for 29 years, currently offers a forward yield of 7.2%. Besides, it trades at a healthy NTM (next 12 months) price-to-earnings multiple of 17, making it an excellent buy.
Pizza Pizza Royalty
Second on my list would be Pizza Pizza Royalty (TSX:PZA), the owner of Pizza Pizza and Pizza 73 brand restaurants. It operates around 776 restaurants through franchisees and collects royalty from them based on their sales. So, rising prices and wage inflation do not substantially hurt its financials. Meanwhile, increasing menu prices to accommodate rising commodity prices and wage inflation could increase its royalty income.
Further, the company has posted positive same-store sales for the previous 12 quarters amid its value offerings, food and technology innovations, and marketing and promotional activities. It is also expanding its footprint by constructing new restaurants. The company’s management expects to increase its restaurant count by 3-4% this year. Besides, it is also continuing to renovate its old restaurants, which could boost its footfall. So, Pizza Pizza Royalty is well-equipped to continue paying dividends at a healthier rate. With a monthly dividend of $0.0775/share, it currently offers a juicy forward dividend yield of 6.9%.
Canadian Natural Resources
Although oil prices have cooled substantially from their April highs, they are around 7% higher for this year. Further, the International Energy Agency projects oil demand in 2030 to be 3.2 million barrels per day higher than in 2023 unless there are significant policy changes. Rising demand could support elevated prices, benefiting oil-producing companies such as Canadian Natural Resources (TSX:CNQ).
The company’s diversified and balanced assets, large and low-risk reserves, and effective and efficient operations generate healthy cash flows, allowing it to raise its dividends consistently. CNQ stock has raised its dividends for the last 24 years at a CAGR (compound annual growth rate) of 21%. With a quarterly dividend of $0.525/share, its forward yield stands at 4.4%.
Besides, the oil and natural gas-producing company has planned to make a capital investment of around $5.4 billion this year, strengthening its assets. These investments could boost its production. Higher production and elevated commodity prices could boost its financials, thus allowing it to continue its dividend growth.
