Interest rates going up is not the worst news for everyone. When interest rates are high, there is a chance that you might get a better savings account rate from the bank you have parked your retirement savings in. However, even at their best, the interest rates can only do so much to convert your savings to retirement wealth, especially since they are typically unable to remain ahead of inflation.
But even if you are investing, you may have to consider its impact on the stocks you pick. Higher interest rates may negatively impact the financials of businesses that primarily generate their revenue from the discretionary spending of consumers.
However, if your primary concern in a high interest rate environment is how it’s going to throttle your spending potential, you may consider saving in the right dividend stock to augment your income.
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A dividend stock
Despite being from the pool of small-cap stocks currently trading on the TSX, Rogers Sugar (TSX: RSI) can be considered a safe dividend investment. It’s the largest maple syrup manufacturer in the world, which gives it a global edge and a solid growth avenue. It’s also one of the largest processed sugar manufacturers in Canada, so a decent number of food-related businesses rely on it for their raw materials.
This is a healthy and stable business model, and the company, which is now called Lantic Rogers, thanks to a merger in 2008, can trace its roots back to 1888. A long-term presence in the region and multiple products that are household names in Canada further strengthens its position as a long-term holding.
As a dividend stock, the primary redeeming quality of Rogers is its dividend yield. The stock is only modestly discounted right now (about 9% from its 12-month peak), and the yield has already gone up to 6.1%. The payout ratio falters occasionally, but it’s currently stable.
A growth stock
Safe growth stocks are a hot commodity and are almost always in demand, but even then, which sometimes leads to overvaluation. But if you are looking for a fairly valued safe growth stock, Alimentation Couche-Tard (TSX: ATD) is worth considering. It’s trading at a price-to-earnings ratio of about 16 right now.
Alimentation is among the largest Canadian convenience store chains in the world. It has a massive international presence though the bulk of its 14,400 stores are in North America. The rest are spread out across multiple European and Asian countries.
When it comes to capital-appreciation potential, Alimentation is among the most compelling long-term holdings in Canada, especially if you wish to combine a good growth rate with consistency. The stock has gone up over 550% in the last decade and may continue to rise at a powerful pace in the near future.
Foolish takeaway
The two safe stocks offer you two layers of protection against rising interest rates. The dividend stock can help you generate a decent dividend income to augment the rising cost of living attached to the interest rates. The growth stock, on the other hand, may help you grow your savings well ahead of inflation.
