I’d buy this FTSE 250 penny stock to beat inflation. Here’s why

The FTSE 250 penny stock might be just the answer to hedge against rising inflation, going purely by what it produces. But its dividends are good too.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Business development to success and FTSE 100 250 350 growth concept.

Image source: Getty Images

There is no denying that inflation is becoming a bigger problem by the day. Just yesterday, the UK’s latest inflation print showed a 5.4% increase in prices on a year-on-year basis in December 2021. To put this in context, the Bank of England’s target rate is 2%. This means that inflation is 3.3 percentage points above than the central bank’s comfort level. This of course could have negative implications for my stock market investments, as price rises could dampen consumer spending. But where there are problems, there are solutions. Like this FTSE 250 penny stock, which could be a good hedge to inflation for my portfolio.

Centamin’s had a poor 2021

Gold miner Centamin (LSE: CEY) has had a difficult past year. It briefly climbed fast during the start of the pandemic in 2020, but has fallen a lot since. It pretty much fell throughout 2021, to reach penny stock levels in August. It has largely stayed at these levels. 

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

It does not help that the company’s performance was also underwhelming. In the first half of 2021, the latest numbers available, both its revenues and post-tax profits declined despite an increase in the average realised gold price. More recently, its gold production update shows that while it is in line with expectations, it has declined from last year, as have revenues. 

The penny stock could pick up now

I think now, however, the stock could pick up. In 2022, its production is expected to exceed that in the past year. Recently, gold prices have also started rising, which could bode well for its financials. Increasing gold prices is no coincidence, of course. Gold is a well-known traditional hedge against inflation. This is because rising prices erode the value of currency. And gold has historically been the alternative ‘safe-haven’ asset. 

However, there is a deeper reason as well. Runaway inflation has the potential to destabilise economies. Inflation has already risen a lot, and if it continues to do so, I reckon investors could panic, which is even more likely to make gold attractive. This is exactly what we saw when Centamin’s share price ran up during the first half of 2020. And considering that inflation is indeed expected to rise higher – some forecasters expect it to be over 6% by spring – I think it might just be a good idea for me to buy this FTSE 250 stock now. 

The FTSE 250 stock’s dividend yield looks good

I also like its dividend yield of 5.5%, which is much higher than that for the average FTSE 250 stock at 2%. For that matter, it looks better than the average FTSE 100 stock’s dividend yield of 3.4%. In fact, considering that its results could just be better this year, I think its dividends could stay elevated. As a long-term investor, I always like to hold some of my savings in gold-related instruments anyway. And there is nothing like it if they also earn me a solid passive income over time, which is also one of my investing goals. I intend to buy Centamin soon, while it is still a penny stock. 

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies still trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young black woman in a wheelchair working online from home
Investing Articles

I’d buy these top UK shares with £1,000

Jon Smith explains how he'd split his £1,000 cash and also notes the top UK shares he wants to invest…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

3 top dividend shares to beat a new recession

I believe that good dividend shares are my best approach to keeping my money safe in a recession. Here are…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Down 80%, this growth stock is a ‘no-brainer’ buy

Growth stocks have faced a torrid time recently. However, after falling 80% since its highs, this FinTech looks too cheap…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Warren Buffett is pouring money into stocks! Here’s a FTSE 100 pick I think he’d buy

Warren Buffett has been investing in several US stocks recently. Here's a FTSE 100 stock I think he'd also be…

Read more »

A Rolls-Royce employee works on an engine
Investing Articles

Is the Rolls-Royce share price on the verge of recovery?

A recent trading update showed the company is benefiting from increased flying hours, so will the Rolls-Royce share price soon…

Read more »

Girl showing thumb up, excited about upcoming shopping
Investing Articles

Is now a good time to buy Tesco shares?

After a strong rally last year, the Tesco share price has stalled. Roland Head gives his view on investing in…

Read more »

The BT Tower looming above London's skyline
Investing Articles

3 reasons to buy – and not buy – BT Group shares

The BT Group share price has a rock-bottom valuation right now. Is this a red flag or does it make…

Read more »

macro shot of computer monitor with FTSE 100 stock market data in trading application
Investing Articles

2 cheap FTSE 100 dividend shares! Should I buy?

These two FTSE 100 dividend shares offer terrific value for money, on paper. Should I load up on them today,…

Read more »