BHP Group (BHP)

The current wave of inflation is largely driven by commodities. Everything from copper to gas is trading at a historically elevated level.

Melbourne-based BHP Group is the largest miner and producer of these commodities. The stock has more than doubled since the pandemic-driven stock market crash of 2020.

However, earnings have outpaced the stock, and dividends have been elevated. That means BHP now offers a dividend yield of 12% per share.

BHP’s dividend payout is higher than inflation. Meanwhile, its underlying business is tethered to the cost of living, making it a potentially effective hedge against rising prices.

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Altria Group (MO)

Winners and losers during economic downturns are determined by pricing power.

Companies that cannot raise prices on customers experience margin compression. However, companies that can raise prices without any impact on demand can pass rising costs onto their customers.

Tobacco companies fall into the latter category. Cigarettes are, unfortunately, addictive, so smokers can be relied upon to pay for their fix even when prices rise.

This is why tobacco giants like Altria can sustain margins and expand cash flow.

Altria has paid a consistent dividend for over 50 years. At the moment, the stock offers an impressive 7.95% dividend yield.

The company may be able to sustain (or even expand) this payout in the face of rising inflation.

Enbridge Ltd. (ENB)

Energy companies are a classic example of an inflation hedge. That said, the price of crude oil is far too volatile to predict. Thus, oil stocks can be unreliable.

One alternative is an energy infrastructure company like Enbridge. This Canadian giant owns and operates North America’s largest network of oil and gas pipelines.

This network has recently been expanded in anticipation of higher demand across the continent. The company is also involved in building pipes to export terminals as America ramps up exports of energy to Europe.

The stock offers a 6.5% dividend yield, which is just below inflation. However, management expects this dividend to expand 5% to 7% every year.

If these targets are met, Enbridge’s total return could be far higher than the rate of inflation.

Fine art as an investment

Stocks can be volatile, cryptos make big swings to either side, and even gold is not immune to the market’s ups and downs.

That’s why if you are looking for the ultimate hedge, it could be worthwhile to check out a real, but overlooked asset: fine art.

Contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.

And it’s becoming a popular way to diversify because it’s a real physical asset with little correlation to the stock market.

On a scale of -1 to +1, with 0 representing no link at all, Citi found the correlation between contemporary art and the S&P 500 was just 0.12 during the past 25 years.

Earlier this year, Bank of America investment chief Michael Harnett singled out artwork as a sharp way to outperform over the next decade — due largely to the asset’s track record as an inflation hedge.

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About the Author

Vishesh Raisinghani

Vishesh Raisinghani

Freelancer

Vishesh Raisinghani is a freelance contributor at Money Wise.

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