Inflation may be less of a concern for the Bank of Canada after its latest interest cut. However, it is still an issue, especially for the many Canadians who are struggling to keep up with rising prices at the local grocery store. While Canada’s central bank signalled that the latest cut could be the last for some time, I’d argue that a few rate hikes might be necessary so that what remains of food inflation can be stomped out.
Of course, a new normal for food inflation of 3% shouldn’t be as acceptable, at least in my humble opinion. Either way, the latest rate cut might just cause a bit of an uptick in food inflation, which should have Canadians getting ready for more of the same: price hikes across the board at the local grocer.
Of course, there are ample stocks out there that have had little issue passing on 2% or 3% price hikes to consumers. And while it’s getting harder to keep up with the rising costs of living, especially with the price of various food items seemingly getting higher every month or so, I do think that sticking with firms with proven pricing power can continue to do well and help investors stay ahead of the rising tide that is inflation amid the current rate-cutting cycle.
In this piece, we’ll check in on two dividend payers that might be able to help offset the inflationary blow going into the new year. And until the Bank of Canada changes course with a few hikes again, investors should be thinking about putting excess cash hoards to work in low-cost value stocks with growing dividends and the ability to dodge and weave past an environment that could see inflation inch higher over the near term.
Empire Company
Empire Company (TSX:EMP.A) stands out as a great value option after its latest dip from recent highs. Shares are down more than 16% from the year’s peak and could be headed a bit lower over the short term. Still, I’m a fan of the valuation and the company’s relatively decent positioning as Canadian consumers continue to seek more deals and better value at the grocery stores they choose to shop at.
The grocery firm behind Safeway and Sobey’s may not be the absolute cheapest place for consumers to shop. Still, as the company continues to do its best to stay competitive with its lower-cost generic-branded items, I do think shares are poised to do well, even as moderating food inflation looks to inch higher again.
Of course, Empire stands out in the middle ground between the discount grocers and the upscale high-end ones. Once the Bank of Canada kicks off its next rate hike cycle and food inflation starts to really plunge, I like where Empire is positioned. Though prices aren’t the lowest, it may very well be in the sweet spot if you think a Bank of Canada pivot will come next. In any case, I think the stock is too cheap after dipping around 16 times trailing price-to-earnings (P/E).
With a solid, growing dividend, currently yielding 1.9%, I’d look to load up the shopping cart on shares of the underrated $11-billion grocer.
