Investing during inflationary times is a hot topic. Especially in a community such as Parksville/Qualicum Beach where we have such a high proportion of retirees. Return of inflation tend to be the buzz words of the day in the investing community.
No wonder, with inflation hitting 5.1 per cent in January. In December, the Consumer Price Index (CPI) increased one per cent on a year-over-year basis. While inflation, as measured by CPI, did hit its highest rate since 1990, it would be technically inaccurate to call this a return of inflation.
The truth is, inflation has been with us for many years. Canada’s last negative CPI was in 1952 – 70 years ago.
When we talk about how to invest during inflation, it is essential to understand that inflation is nothing new. It is one of the main reasons we invest in the first place. We want our money to maintain its purchasing power.
“In terms of investments, I have always felt that investing in dividend-paying stocks is one of the best ways to keep up with inflation,” says Jim Grant, owner of Grant Investments of Raymond James Ltd., and licensed Portfolio Manager. “The main reason for this is that good companies pay dividends and often increase their dividends over time. The same cannot be said for many other types of investments.”
A word of caution: Not all dividend stocks are created equal. It is important to choose the right ones. Here are some tips to consider when selecting dividend-paying stocks.
- Avoid focusing too much on dividend yield. It is nice to see a high yield, but it is not always a good sign. It can imply a lack of confidence on the part of investors in the company. Personally I see dividend growth as a more important consideration. Look for companies with a history of increasing their dividends over time.
- Look at payout ratios. It is worrisome to see a company that pays out most or all of its profits in dividends. Ideally a company will reinvest at least a portion of its profits to fund future growth. Not only can this lead to future dividend growth, it can also lead to a higher share price, which is also nice!
- Consider a company’s free cash flow, which makes dividend payments easier.
At Grant Investments of Raymond James, income investing involving dividend-paying stocks, bonds, and other fixed-income investments is an area of specialty. They work with investors in the Parksville/Qualicum Beach community and beyond to ensure their financial goals are met efficiently and consistently.
“Representing the Raymond James Private Investment Management Group, my team and I offer an exceptional wealth management service that can benefit individuals looking for quality retirement planning, estate planning, and wealth management services,” says Grant.
Raymond James Ltd., member – Canadian Investor Protection Fund.