Inflation Concerns? Another Reason to own Equities

Last week ended Canadian bank results season. All of the Big Six announced dividend increases. On average they increased their dividends to shareholders by 15%. The last bank to announce increases to their dividend was Bank of Montreal with an increase of 25%.

This at the very same time that the financial media is raising alarm after alarm regarding inflation. Almost every expert or talking head is trying to forecast what inflation will be in the coming year. Whether or not you believe the recent upturn in inflation is transitory ( temporary) or long term, any good financial plan will be set up with the goal of increasing your purchasing power over your life time. This is why you own or should own equities as part of your long term portfolio.

The shareholders of the six major banks just got their dividend payments increased by at least twice if not more than the expected rate of inflation. This seems like a great way of combating inflation regardless of what the rate is. This now makes the average dividend yield of bank stocks in the 3.5% range. Interestingly this is at least 10 times what a “high yield” savings account at one of those banks pays out to its account holders.

In fact since World War II dividend growth for North American companies have been more than 2 times that of inflation over the same period of time. Two times! Sounds like a good long term strategy to me.

If you have any questions regarding your long term financial plan, please contact us.