With the chances of an interest cut being moderately high, increased levels of inflation could be the end result. That's because lower interest rates have the effect of stimulating an economy and encourage the price level to increase at a faster rate than under higher levels of interest rates.
While high yield stocks are one solution, so are companies that are increasing dividends at a faster rate than inflation. With that in mind, here are three stocks that could help you to overcome a potentially higher inflation rate.
Amcor Limited
Shares in Amcor Limited (ASX: AMC) have had a disappointing month, with them being down 7%. It's also been a time of change, with Ron Delia (the current Finance Director) being announced as the replacement for incumbent CEO, Ken MacKenzie. This means a period of relative instability may lie ahead for the company, but with it being an internal appointment the transition is likely to be a smooth one.
While Amcor currently yields 3.6% even after its recent share price fall, it has increased dividends per share by an impressive 17.3% in the last year alone. This is positive news for investors as it shows that Amcor is becoming ever more shareholder friendly with regard to its payout, which could help you to overcome higher future levels of inflation.
Insurance Australia Group Ltd
It's also been a great year in terms of dividends for investors in Insurance Australia Group Ltd (ASX: IAG). That's because it has increased dividends per share by 8.3% in the last year alone. That's 3.6 times the current rate of inflation and means that investors in the stock are currently enjoying a 6.1% yield as well as a rise in their income.
And, looking at IAG's longer term track record of dividend per share growth, it also bodes well for the future. That's because IAG has increased dividends per share at an annualised rate of 4.4% over the last 10 years, which means that even if inflation does increase from its present 2.3% level, IAG could still deliver a real terms increase in income for its shareholders.
Telstra Corporation Ltd
Over the last year, Telstra Corporation Ltd (ASX: TLS) has increased dividends by 5.4%. This is more than twice the rate of inflation and shows that, while the company is very much focused on raising its future growth potential outside of Australia, it is also increasing shareholder payouts at a brisk pace.
Certainly, Telstra's current price to book (P/B) ratio of 5.6 appears rather rich while the wider telecoms sector has a P/B ratio of 3.5. However, with a yield of 4.7% and an enviable position in the Aussie mobile market (as well as the recent deal with NBN Co), Telstra could be worth investing in and also help you to overcome any rises in the rate of inflation moving forward.
