Higher oil prices are starting to hit, and if you haven’t yet felt the pain at the gas pump (let’s say you don’t drive), the oil spike might translate to higher prices for a wide range of other goods. Undoubtedly, the headline inflation figure has come down to a seemingly manageable, even acceptable level. But underneath the hood, Canadians know that there hasn’t been much relief from the price increases at the local grocery store.
With higher energy prices thrown into the equation, it certainly seems like more of the horrid inflation could be in the cards for the rest of the year. And if oil stays elevated, it may prove tough to stomp out an inflation resurgence without big rate hikes delivered by the Bank of Canada and the U.S. Federal Reserve.
Of course, oil could easily fall back just as suddenly as it spiked, but for investors who are sick of inflation, I’d argue that it might make sense to back up the truck on some higher-yielding stocks to be ready for what could be more frustrating price increases that go beyond just food.
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Canadian Natural: The natural pick that could win if oil stays higher
Perhaps the best way to prepare is to punch your ticket to an energy producer, even if it means buying on strength and slightly higher prices. Canadian Natural Resources (TSX:CNQ) is a natural pick that might continue to do well, even after its sudden 48% year-to-date gain. Of course, the name is at increased risk of a near-term pullback.
But if you’re looking to hedge against higher oil (could US$150 be next for WTI? I have no idea, but if it is, CNQ stock might be a worthy addition to any portfolio). The dividend yield still looks quite decent at 3.7%. But, of course, it’s a far cry away from the 5% that we’ve come to expect over the years.
Either way, CNQ stands out as a top-notch energy producer to benefit from the oil shock. For those looking for less sensitivity to the oil price volatility, perhaps going to the midstream could be the place to be. It’s got the utility-like cash flows, and while higher oil prices won’t result in hefty near-term gains, I do think that there’s support for long-term expansion projects.
Enbridge: A higher-yielder that offers a steadier ride and solid dividend growth
Either way, Enbridge (TSX:ENB) stock looks like a steady rock right here. The yield is still quite attractive at 5.3%, but who knows how long it’ll stay above this level, especially as pipelines become the new way to score gains and yield. As shares continue to pick up traction, the yield is bound to compress, but with the means to keep raising the bar on the dividend, I do expect that long-term shareholders are positioned to keep doing well with the firm. It might not be the right hedge against higher oil, but it is a great, stable source of income to stash away if you fear things are going to keep getting pricier by the month.
At the end of the day, the strong dividend growth potential and nice upfront yield are reasons to give Enbridge a closer look, especially if you’re looking to give yourself a raise to be ready for more inflation to come. All the inflation is getting exhausting, but such income stocks can help offset some of the pain.
