Inflation is high! The prices of almost all the goods used to calculate overall inflation rates have increased. At this rate, cash sitting in my bank account won’t stretch nearly as far next year as it will today. That’s why I think that identifying stocks to buy that might grow my savings faster than the rate of prices is a more pressing matter than ever.
But which stocks do I think will thrive in a climate where prices are rising? Here are two I decided to add to my portfolio last week.
British American Tobacco
British American Tobacco (LSE:BATS) is up an impressive 19% year to date as I write.
Research shows that cigarettes are slightly ‘price inelastic’. This means that if the price of cigarettes increases, the following drop in demand will be less significant by comparison. But much of that lost demand will be likely to substitute cigarettes for oral and vapour-based nicotine products.
British American Tobacco has all these types of products in its portfolio. Raising its prices to protect its profit margins from inflation shouldn’t see demand drop too harshly. The tobacco giant also boasts a 6.5% dividend yield. Topping that yield up with share price growth may quickly find my investment keeping up with inflation.
However, British American Tobacco does have a high level of debt leaving it exposed to rising interest rates. Currently, the company is working on reducing its debt but whether that continues is not guaranteed.
When prices rise and consumers become strapped for cash, you can expect demand for cheap housing to rise. This is particularly the case for students seeking rented accommodation, largely supported by their limited student loans.
Unite Group (LSE:UTG) is the UK’s largest owner and developer of purpose-built student accommodation.
As I write, the group’s share price has been hit hard so far this year, down 25% year to date.
Last week, Unite Group had several positive announcements to make. The group has a large waiting list due to a shortage of accommodation built close to university campuses. The income from property that Unite Group does earn is expected to confidently climb by almost 5% as it looks to pass costs on to the consumer.
With a short supply of university accommodation, it seems safe to expect that students will absorb rent increases, which will be a positive for share price growth.
Unite Group currently has a respectable dividend yield of 3.2%.
However, its dividend track record is not a stable one and its share price growth in the long term is heavily reliant on the popularity of university education.
I think both stocks are well positioned to potentially outstrip inflation over the next few years. Both stocks have reliable income at present. The goods and services offered by both British American Tobacco and Unite Group are experiencing demand that will be difficult to shake off.
I recently added both of these stocks to my portfolio with a £1,000 position in each of them.