Three stocks to protect your income from rising inflation

Professional investors Alastair Laing and Peter Spiller, co-managers of the Capital Gearing Trust, pick three stocks with long-term inflation-linked revenues

After decades of quiescence, inflation appears to be rearing its head once again. With interest rates likely to remain well below inflation for many years, savers face the dismal prospect of ever-diminishing purchasing power. 

At Capital Gearing Trust, we focus on protecting the value of our clients’ wealth in real (after inflation) terms. There are a number of tools that we use in pursuit of that aim, including substantial investments in inflation-linked bonds. We also focus on specialist equities, typically investment trusts and real estate investment trusts (Reits), which benefit from long-term inflation-linked revenue streams. These are three examples from the infrastructure and specialist property trust sectors. 

Long-term cashflow from infrastructure

International Public Partnerships (LSE: INPP) is an FTSE 250 investment trust that holds stakes in over 100 public infrastructure projects in a range of sectors. Its areas of focus include electricity transmission, transport and education. Recent new projects include subsea transmission cables linking UK offshore windfarms to the electricity grid. 

Project revenues are regulated or backed by government contracts, and are long term with a weighted average life of 32 years. The portfolio enjoys substantial inflation protection: the managers estimate that portfolio returns increase by 0.8% for every 1% of inflation. This results in a well-underpinned 4.2% dividend that has historically grown by at least 2.5% per annum regardless of the economic environment. If inflationary concerns start to escalate, these secure inflation protected cashflows should be valued at a significant premium. 

Affordable inflation-linked rents

Residential Secure Income Reit (LSE: RESI) has two principal assets within its portfolio: retirement flats and shared ownership accommodation. The retirements flats are let to elderly residents on affordable rents which rise in line with the retail price index (RPI) each year. 

Shared ownership accommodation involves the trust selling a share of residential properties to homebuyers and then renting to them the balance of the house. The purpose is to help house buyers take ownership of properties they would otherwise be unable to buy. 

The trust is able to secure grant funding from the government which it uses to ensure the rental charge is affordable. These rents also rise in line with RPI. The combined effect results in a high-quality income stream that enables it to pay a 4.7% dividend that should rise in-line with inflation. 

Uncapped RPI-linked leases

Secure Income Reit (LSE: SIR) holds a portfolio of high-quality assets on long leases including leisure assets leased to theme parks, private hospitals and hotels. Other similar trusts trade on significant premium to their underlying asset value, but Secure Income Reit trades at only a modest premium. A majority of its long leases are linked to RPI without any caps, which could prove very valuable in the event of a serious surge in inflation.

Recommended

How to find the best dividend stocks
Income investing

How to find the best dividend stocks

Stocks that pay dividends tend to outperform the market over the long run - as well as providing an income. Here, Rupert Hargreaves explains the best …
28 Jun 2022
Boom times for the collectable watch market
Alternative investments

Boom times for the collectable watch market

Vintage and collectable watches are setting records at auction. Chris Carter reports.
28 Jun 2022
What the end of the 1970s bear market can teach today’s investors
Stockmarkets

What the end of the 1970s bear market can teach today’s investors

The 1970s saw the worst bear market Britain has ever seen, with stocks tumbling 70%. Things have changed a lot since then, says Max King. But there ar…
28 Jun 2022
S4 Capital – a company that still has much to prove
Share tips

S4 Capital – a company that still has much to prove

Audit delays set shares tumbling at advertising agency S4 Capital. It needs to show it can turn growth into profits, says Bruce Packard.
28 Jun 2022

Most Popular

Market crash: have we hit bottom or is there worse to come?
Stockmarkets

Market crash: have we hit bottom or is there worse to come?

For a little while, markets looked like they were about to embark on a full-on crash. And that could still happen, says Dominic Frisby. Today, he look…
27 Jun 2022
Interest rates are rising, here are the best savings accounts on the market
Savings

Interest rates are rising, here are the best savings accounts on the market

With inflation at more than 9%, your savings are not going to keep pace with the rising cost of living. But you can at least slow the rate at which yo…
24 Jun 2022
Why a recession will do us good
UK Economy

Why a recession will do us good

A period of slimming down is always painful, but it leaves us healthier for the long run, says Matthew Lynn.
26 Jun 2022