2 UK stocks to buy now to hedge against inflation

Warehouse REIT and Tritax Big Box could benefit from booming e-commerce growth, and I see both as stocks to buy now to protect my portfolio from inflation.

| 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.

Inflation in newspapers

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

As we enter October and Spooky Season, it is inflation that is spooking me as an investor. Britain’s inflation rate rose to 3.2% in August. Not only is this the highest level since 2012 but with supply chain problems, it’s not hard to see this spiralling further. I’m on the lookout for stocks to buy now to protect my portfolio from inflationary pressures. 

I see an opportunity in two real estate investment trusts (REITs): Warehouse REIT (LSE:WHR) and Tritax Big Box REIT (LSE:BBOX).

Why REITs?

There are two reasons that I see REITs – particularly warehouse REITs – as potential protection from the worst effects of inflation to my portfolio.

Should you invest £1,000 in Tritax Big Box right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Tritax Big Box made the list?

See the 6 stocks

Reliable dividends – REITs don’t pay corporation tax on profits and capital gains, which supports their ability to pay progressive dividends to shareholders. Additionally, there is usually a positive correlation between inflation and rent, consolidating a REIT’s ability to grow their business and thus the dividend. Both Warehouse Reit and Tritax Big Box offer attractive yields at 4.23% and 3.07% respectively.

Covid-19 has accelerated e-commerce growth – there looks to be a seismic shift from high street retail to e-commerce, and this has caused demand to skyrocket for warehouse space. With limited supply of warehouses and booming demand, there’s potential to grow market rents.

Warehouse REIT

Warehouse REIT’s portfolio nearly doubled in size in the year to 31 March 2021. The portfolio valuation now stands at £792.8m and occupiers of its warehouses range from local businesses to household names, including Amazon, Argos and John Lewis.

With its diversification in occupiers and assets, the company reports 95.6% occupancy of its warehouses and 98.6% rent collection. It also boasts a total accounting return of 27.7% in the year to 31 Mar 2021.

Tritax Big Box

Tritax Big Box is a much larger REIT with a total portfolio value of 4.89bn. It is a component of the FTSE 250 and with returns of 33% in the past year, it’s hard to ignore this REIT in terms of stocks to buy now. Its customers also include Amazon as well as Tesco, Unilever and Rolls-Royce.

There’s a lot to like about its H1 2021 results, with the company’s profit before taxation up 264.3% compared to a more challenging H1 2020 as the pandemic struck.

What is particularly interesting here with the backdrop of rising inflation is that 41% of its customers’ rent roll up for review over the next 18 months. This should support sustainable earnings growth and progression of the dividend.

Risks and rewards

Both companies are trading at a 10-15% premium to net asset value.  The cocktail of e-commerce and inflationary tailwinds mentioned above make sense of this premium but I will be keeping a close eye on this trend.

Another concern for me is that to fund new acquisitions, both companies have raised capital through share issuance programmes, causing stock dilution. Although I believe in the long-term growth potential of both companies, short-term hits to the stock are likely.

I believe that the two stocks offer diversification for my portfolio. If inflation is here to stay, my belief in the positive outlook for the warehouse sector will boost my conviction in these companies, keeping them on my stocks to buy now list for a while yet.

AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!

Buckle up because we're about to dive headfirst into the electrifying world of AI.

Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.

If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Nathan Marks owns shares in Warehouse Reit and Tritax Big Box. The Motley Fool UK has recommended Tritax Big Box REIT and Warehouse REIT. 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

Closeup of "interest rates" text in a newspaper
Investing Articles

Should I lock in a 5.38% yield for 30 years of passive income?

With UK government bonds offering higher yields than the FTSE 100, should investors look beyond the stock market for passive…

Read more »

Young woman carrying bottle of Energise Sport to the gym
Investing Articles

Here are my 3 top-performing FTSE shares in June

Mark Hartley highlights his three best-performing FTSE shares from last month and takes a closer look at a particularly interesting…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Greggs shares slump again, but could go on a (sausage) roll

After sales growth fell during the heatwave, Greggs shares were battered. But I suspect the bad news is fully baked…

Read more »

Tesla car at super charger station
Investing Articles

Will the Tesla share price go up or down? It’s pure speculation

The Tesla share price is simply disconnected from the fundamental principles for valuing a stock. Dr James Fox explains.

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Should savers switch to the Stocks and Shares ISA if Cash ISA limits fall?

The Stocks and Shares ISA could gain popularity if annual allowances on Cash ISAs fall. This may be a good…

Read more »

Close-up image depicting a woman in her 70s taking British bank notes from her colourful leather wallet.
Investing Articles

£10k to invest? Here’s a hot dividend share that could deliver a £2,653 passive income over just 3 years

Searching for the best passive income stocks to buy? Here's a high-yielding FTSE 250 dividend share I'm considering for my…

Read more »

Front view of aircraft in flight.
Investing Articles

Shell shares: check out the latest price and dividend forecasts

Harvey Jones assesses the outlook for Shell shares amid a tricky time for the oil and gas sector. Where could…

Read more »

Woman riding her old fashioned bicycle along the Beach Esplanade at Aberdeen, Scotland.
Investing Articles

Check out the latest easyJet share price and dividend forecasts. Time to consider buying?

The easyJet share price has given investors a bumpy ride but looks incredibly good value. Can Harvey Jones see blue…

Read more »