Five “Inflation-Proof” Stocks to Buy and Hold Forever
Inflation has soared recently – and investors have been blindsided. While high inflation tends to create a lot of uncertainty in the market, investors have ways to beat inflation.
How? With shares of companies that are effectively “inflation proof.”
A select number of companies are able to raise prices to offset higher costs. And customers have no choice but to pony up.
We’ve identified five companies that are inflation-proof. They stand to benefit from rising prices. We don’t know how long inflation will last, or what its long-term impact will be.
Yet, with these inflation-proof stocks, investors can rest easy. These companies will still build wealth above and beyond inflation over time.
Inflation Proof Stock #1: Costco Wholesale Corporation (COST)
Costco Wholesale Corporation is a membership warehouse company. Customers pay an annual membership fee – which works as pure profit for the company and gets passed on to shareholders.
That’s just one way the company works to beat inflation.
Another way is to offer products to customers at the absolute lowest prices in retail. Costco has been known to end a relationship with any provider who offers anyone else a lower price. Given that Costco received over $217 billion in revenue last year, that’s a relationship that many find worth having.
And, rather infamously, Costco has kept the price the same on a number of food items the same over time. That includes a $1.50 combo meal featuring a hot dog and soft drink, as well as other products such as frozen pizzas and rotisserie chickens. These are classic examples of a “loss leader,” which gets customers into the store to spend.
At a time when retail companies have been pulling back, Costco’s sales have been holding up strong. The company grew earnings by 11 percent last year, with revenue up 16 percent. Costco reports that the average shopper buys 9 items and spends $114 per trip.
Costco has over 815 warehouses globally, with 564 of those in the United States alone.
In the meantime, Costco pays a dividend of about 0.7 percent. While that’s not a huge yield to start, the company has a history of raising its dividend. Plus, every few years, the company will pay an additional special dividend, making for even more income for investors who simply buy and hold the stock.
Inflation Proof Stock #2: Dollar General Corporation (DG)
Another retailer focused on keeping costs down for customers is Dollar General Corporation (DG).
The company operates over 18,190 stores in 47 states. And it’s opening new stores at an average of 3 per day. Dollar General is focused on opening up in areas near small towns that often have few, if any, major supermarkets or big-box stores.
That gives Dollar General a lucrative niche for providing rural areas with their shopping needs. And it’s made it the largest US retailer by outlets. 75 percent of the US population is within 5 miles of a Dollar General location.
Dollar General offers a variety of products such as food, home goods, toys, and cleaning supplies. And it does so at rock-bottom prices.
That makes this the ultimate consumer defense stock. The company expects to see sales growth of at least 10 percent, and same-store growth of 2.5 percent. Even with the company’s rapid increase in locations, it’s still managing to grow sales.
That’s translating into a long-term winner for investors. While the company only has a profit margin of only 7 percent, the company’s rapid rise in revenue shows no signs of slowing down.
Dollar General looks to pay out about 20 percent of its earnings via dividends. That’s allowed the company to recently increase its payout from $1.81 annually to $2.20, for a dividend yield of about 0.9 percent to start right now.
Inflation Proof Stock #3: Barrick Gold Corporation (GOLD)
When investors think of inflation, their thoughts often turn to gold. The metal has held its purchasing power against inflation over time. And it tends to see its biggest moves when inflation is unexpected, offering additional inflation protection at a time when it’s needed most.
Gold can be cyclical, and the metal’s flat performance in the past year hasn’t helped out gold mining companies. But that may just create an excellent buying opportunity. Among gold miners, Barrick Gold Corporation (GOLD) stands out.
It’s one of the largest players in the industry. That gives it an advantage with ownership of some of the largest and lowest-cost mines, such as the Porgera Gold Mine in Papua New Guinea with reserves valued at nearly $47 billion – about $20 billion more than the current market cap of Barrick.
Even though gold prices have been weak in the past year, Barrick’s revenue has held relatively steady. When gold prices rise, revenue can soar. And a gold miner’s costs are relatively fixed, so higher revenues will lead to a far higher profit margin.
Barrick looks to pay out about one-third of its earnings in the form of a dividend. At current prices, shares yield about 2.5 percent, with room for more growth if gold prices take off.
Inflation Proof Stock #4: Freeport-McMoRan (FCX)
While gold can get all the attention during a time of inflation, other metals are important as well. Inflation tends to mean rising prices for goods such as copper and iron.
When the economy is slowing down, prices for such base metals can decline as well, given the strong demand for copper in construction.
However, that just creates a great buying opportunity for investors to catch the upswing in the copper cycle. That’s especially true as inflation tends to drive prices higher in time. Combined with a strong economy, copper prices could soar.
Freeport-McMoRan (FCX) is one of the biggest players in base metals. They’re a major owner of the Grasberg mine in Indonesia, among other industry-leading locations rich in minerals.
The mining giant has to deal with volatile commodity prices for the products it mines and sells. That can create some great quarters and some weak quarters.
Freeport has a growing dividend payout as well, with shares currently yielding close to 2 percent. Plus, the stock has a low payout ratio of less than 15 percent of earnings. That indicates that there’s room for higher cash payouts as copper prices trend higher with inflation. And buy and hold investors can buy at a low point in the commodity cycle for massive income and massive gains.
Inflation-Proof Stock #5: Intercontinental Exchange (ICE)
When prices rise due to inflation, that means that some companies can earn more simply due to the higher dollar value of fees. That tends to bode well for a number of financial players.
One potential winner is that of a financial exchange company, like Intercontinental Exchange (ICE).
ICE owns 13 regulated exchanges and 6 clearinghouses, offering everything from stock trading to fixed income, to futures and options trading. The company has even been building out its own mortgage business. So it truly has a wide range of financial markets to profit from.
Once set up, a financial exchange is capable of earning a high profit margin. ICE has a profit margin close to 56 percent, meaning that it can keep 56 cents out of every dollar it earns. And as inflation moves higher, increased financial trading volume means that income and earnings will tend to rise higher automatically.
Those qualities make ICE perfect for buy-and-hold investors. The company pays out about 20 percent of its earnings in the form of dividends.
While the stock currently has a yield of about 1.5 percent, increases over time could lead buy and hold investors to ever-bigger profits, no matter what the overall stock market is up to.