The Bank of Canada (BoC) raised its policy rate again in July 2023, announcing that inflation will linger for longer. According to BoC governor Tim Macklem, the governing council’s new projected timeline to bring inflation down to its 2% target is mid-2025, not earlier.
Canadians will have to bite the bullet until the hiking cycle is finally over. Meanwhile, the inflationary environment threatens purchasing power. If you need to preserve it or avoid a further reduction, there are ways to boost your passive income in 2023.
Stay invested
Staying invested or investing in income-producing assets, despite surging inflation, is better than keeping your cash idle. Let the money work for you and grow through the power of compounding. Moreover, the income streams should help you cope with inflation.
Diversify to spread risks
Diversification or maintaining a multi-asset portfolio is a way to spread risks. The yields of bonds and fixed-income investments have risen due to inflation. You can balance between low-risk investments and higher-risk assets like stocks and still create passive income.
Royal Bank of Canada (TSX: RY) is the perfect anchor stock in an investment portfolio. Canada’s largest bank is a reliable income provider, given its 153 years of dividend track record. Look beyond the price ($127.42 per share), because your investment can transform into regular quarterly income. The current yield of 4.28% can also increase in the future.
Fitch Ratings affirmed its AA- rating for the RBC and maintained a stable outlook. The rating agency said the $177 billion bank has a strong and sustainable business profile, especially its domestic franchise. Moreover, the asset quality is resilient due to favourable operating environments in Canada and the United States.
In the second quarter (Q2) of fiscal 2023, net income attributable to common shareholders declined 14% year over year to $3.6 billion due to higher provision for credit losses (1% increase). Despite the profit drop, RBC raised its quarterly dividend by 2%.
Its chief executive officer (CEO) Dave McKay said, “Our focused growth strategy, prudent risk and capital management, and diversified business mix exemplify our strength and stability amidst a complex macro environment.”
RBC is also awaiting approval to acquire HSBC Canada for $13.5 billion. The proposed takeover is pending after the federal government extended public consultations. The big bank plans to build on the sustainable finance offerings of HSBC in the coming years.
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Invest in REITs
Real estate investment trusts (REITs) are alternatives to owning physical properties. Morguard North American REIT (TSX: MRG.UN) in the residential sub-sector is today’s top choice. Because of the affordability crisis and rising borrowing costs, the average asking price for rental units is increasing at a fast clip.
The $937.18 million REIT owns and operates 43 multi-suite residential properties (13,089 suites) in North America. Morguard benefits from rising average monthly rents and enjoys high occupancy rates in its Canadian (98.6%) and U.S. (95%) properties. Management also expects the healthy demand to continue.
Morguard trades at $16.69 per share and has outpaced the broader market year to date at +5.19% versus +4.61%. Besides the attractive 4.28% dividend yield, the payout frequency is monthly.
Protection against inflation
Inflation is a pain in the neck, but it doesn’t mean there’s no protection against it. You can create or boost passive income to minimize the impact.
