Prepare for Stagflation: 4 Stocks Offering Stable Monthly Income

As your income struggles to cope with rising expenses, you need another source of stable income. Dividend stocks offer you that source.

Man data analyze

Image source: Getty Images

Are rising prices eating up your monthly income? Is the salary hike you got last year struggling to keep up with the 6.8% inflation (April 2022 figure)? Such times remind you of the need for a stable monthly income. Like most Canadians, if you saved up the stimulus money in income stocks during the pandemic, you locked in a higher distribution yield. That could probably help you with one expense.  

How to prepare for stagflation 

The market downturn has brought a similar opportunity to you in June 2022. This month, most dividend stocks could bottom out, as warning bells of stagflation create panic in the stock market. Stagflation is an economic situation where rising prices start affecting consumer demand and slowing economic growth. Early signs of stagnation are visible, as pandemic savings are fast depleting, and U.S. savings rates hit a low, despite rising interest rates. 

Four income-yielding stocks to buy in stagflation 

The contrarian approach is to do the opposite. Buy when others are selling and invest when others are spending. Now is the right time to invest for hay day, because things could get tough for consumers and businesses in the future. Here are four stocks that could survive a tough economy and pay dividends regularly, helping you with monthly expenses. 

Energy and utility companies enjoy stable cash flows

No matter how expensive oil and natural gas get, cold winters need heating solutions. The supply shock in these industries has inflated oil prices above US$100. Oil companies have even discontinued derivatives they use to hedge themselves from the risk of a price drop. Canadian Natural Resources gives Canada the energy security it needs in times of energy crisis. Moreover, the geopolitical tensions in Eurasia have made Canada a favourable ally to export oil and natural gas to Europe and the United States. 

It will take at least a year for oil and gas prices to normalize. And with winter approaching, seasonal demand could peak. Canadian Natural Resources stock could appreciate your capital in the short term while giving you a dividend yield of 4.5%. 

Telecom giant BCE is the utility of the digital age. While consumers are cutting down on discretionary items, they might increase their broadband subscription, as the internet offers a cheaper alternative to travel and entertainment. Stable subscriptions could help BCE maintain regular dividend payments and even continue its 5% dividend growth. 

REITs are a good source of stable monthly income 

Other than utilities, real estate is a good income source. However, REITs are more exposed to economic conditions than energy. Rising interest rates have slowed house prices. People are thinking thrice before buying a house in this economy. A looming recession could pull down property prices and cause a fallback in REIT prices. But it won’t affect rental income in the short term. 

Amid fears of recession, I am suggesting a contrarian approach to buying commercial REITs. SmartCentres and Slate Office face the risk of reduced occupancy or rental delays if the weak economy affects the business cycle. Many offices and retail stores could resort to cost cutting by closing any additional branches. And it is due to this risk that they have distribution yields of 6.7% and 8.4%, respectively. 

While Slate cut its distribution once during the pandemic, SmartCentres didn’t. The latter also survived the 2008-09 financial crisis without a distribution cut. In the best-case scenario, they could provide a stable monthly income. In the worst-case scenario, they could reduce their distribution by a third or half. But they will continue to pay distributions.

How much income can you get? 

If you invest $2,000 in each of the four stocks, you can earn a stable monthly income of $42. This amount may look small in the short term, but it can grow in the medium and long term. Moreover, your $10,000 could grow to more than $12,000 as the economy recovers.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends CDN NATURAL RES and Smart REIT.

More on Dividend Stocks

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Invest Your $7,000 TFSA Contribution in 2024

Here's how I would prioritize a $7,000 TFSA contribution for growth and income.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

Technology
Dividend Stocks

TFSA Investors: 3 Dividend Stocks I’d Buy and Hold Forever

These TSX dividend stocks are likely to help TFSA investors earn steady and growing passive income for decades.

Read more »

four people hold happy emoji masks
Dividend Stocks

Love Dividend Growth? Check Out These 2 Income-Boosting Stocks

National Bank of Canada (TSX:NA) and another Canadian dividend-growth stock are looking like a bargain going into December 2024.

Read more »

An investor uses a tablet
Dividend Stocks

A Dividend Giant I’d Buy Over Enbridge Stock Right Now

Enbridge stock may seem like the best of the best in terms of dividends, but honestly this one is far…

Read more »