In May, the country’s inflation rate climbed to 3.6%, marking one of the biggest increases of the decade. The rate is not uniform across the different dimensions of expenditure since transportation increased by 7.6% (the highest) and food by only 1.5% (the second lowest), but it is still of a significant leap.
This is a not-so-sweet reminder of how quickly inflation can eat into your savings. Even an inflation rate of 2% on average can build up over time and reduce the purchasing power you have with your capital.
This is one of the reasons why it is always recommended to keep most of your savings in investments rather than cash, because even the best RRSP rates usually do not exceed 1.25%, which is insufficient. , even in the face of normal inflation, and even less. hyperinflation.
And if you’re worried about preserving capital, you might consider sticking with established aristocrats who also tend to be leaders in their respective industries. They may not be aggressive producers, but even modest growth can help you stay ahead of inflation.
A telecoms giant
Telus (TSX: T) (NYSE: TU) is one of the top three telecommunications players in Canada that have consolidated approximately three-quarters of the market. So far, Telus is the best growth stock of the bunch. As an aristocrat, the company has increased its payouts for 17 consecutive years and is currently offering a hefty return of 4.5%. The payout rate is a bit high, but the company is financially stable enough to live with that.
Even the 4.5% yield, in its own way, can help you stay ahead of inflation. If we compare it to a benchmark inflation rate of 2%, the company will add more to your capital (through dividends) than inflation takes away. But even from a pure capital appreciation standpoint, Telus has a 10-year CAGR of 12.6%, so even if you remove inflation, the annual growth could still be double digits.
A banking giant
Canadian banks like Toronto-Dominion (TSX: TD) (NYSE: TD) are more than reliable dividend churning machines; they are also modest producers. Growth in 2021 has been unusually high (21.7% so far), and it has also pushed up the 10-year CAGR to a good 12.5%. It’s not the highest in the banking industry, but it’s still high end.
And with that comes the stability of the banking industry, TD’s excellent dividend history, and a slightly high price tag (which is justified). The bank has a strong presence in Canada and the United States and has a rapidly growing digital user base. Financial data is stable and dividends are rock solid. This makes TD an ideal asset for long-term capital growth and fighting inflation in your RRSP.
A defensive consumer title
Empire Company (TSX: EMP.A) is a Nova Scotia-based company food retail conglomerate and the proud owner of Sobeys, the nation’s second-largest grocery store chain. Even though he offers the lowest return on this list (1.23%), he is the oldest aristocrat on this list and has increased his payouts for 26 consecutive years. The 10-year CAGR is 10.9%, so even if you factor in inflation, it could still offer a decent rate of growth.
The main attraction of Empire is its business i.e. food. Regardless of the market conditions, this is one of the few market segments that does not experience major declines. In fact, when people avoid dining out and focus more on preparing their own food, companies like Empire see their sales increase. This is probably the reason why its revenue increased significantly for two quarters in 2020.
You don’t have to invest your hard-earned savings in risky stocks to beat inflation. Even with safe and reliable stocks like the three we talked about, you can easily get ahead of the negative impact of inflation on your retirement savings in your RRSP. The person skilled in dividends can either “DRIP” on the growth of your holdings or help you build up cash in your RRSP that you can use to invest in other companies.
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This article represents the opinion of the author, who may disagree with the “official” recommending position of a Motley Fool premium service or advisor. We are straight! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer, so we post sometimes articles that may not conform to recommendations, rankings or other content. .
Foolish contributor Adam othman has no position in any of the stocks mentioned. The Motley Fool recommends TELUS CORPORATION.