Better Buy in August: Passive-Income or Growth Stocks?

With a steady mix of passive-income and growth stocks, investors can create a prime portfolio even during market volatility.

When deciding whether to invest in passive-income stocks or growth stocks, Canadian investors need to consider their financial goals, risk tolerance, and market conditions. And those market conditions aren’t exactly stellar right now.

So, which is better as we head into August? Let’s take a look at the breakdown between passive income and growth stocks.

Passive income

These stocks are typically known for their steady dividend payouts and lower volatility. They are ideal for investors seeking a reliable income stream, especially in uncertain economic times. Dividend stocks, such as those from utilities, real estate investment trusts (REITs), and large financial institutions, are considered safer bets.

Passive-income stocks, typically dividend-paying stocks, offer regular income and are generally considered less volatile than growth stocks. They are particularly attractive in times of economic uncertainty as they provide a steady income stream.

Given the current market conditions, with high interest rates and economic uncertainty, passive-income stocks might be more appealing to conservative investors seeking stability and regular income. And one to consider would be Canadian Apartment Properties REIT (TSX: CAR.UN).

CAPREIT has demonstrated robust financial performance in recent quarters. CAPREIT also continues to enhance its portfolio through strategic acquisitions and property upgrades. The REIT has targeted the disposition of over $400 million of non-core Canadian properties in 2024, focusing on high-quality assets that can generate better returns. CAPREIT maintains a solid financial position with approximately $369.3 million in available Canadian liquidity. This easily supports its 3.03% dividend yield.

Growth stocks

Alright, so what about growth stocks? These stocks are characterized by their potential for significant capital appreciation. They often reinvest earnings to fuel expansion, meaning they may not pay dividends. Growth stocks can offer substantial returns but come with higher risk due to market volatility and economic fluctuations. 

Growth stocks are generally more suitable for investors with a higher risk tolerance and a longer investment horizon who are willing to ride out market ups and downs for potentially higher returns. So, for those willing to take on more risk for potentially higher rewards, growth stocks in resilient sectors like technology or essential services may still be attractive.

But even among growth stocks, there are safer options. For instance, Constellation Software (TSX: CSU). Over the past few years, Constellation Software has consistently delivered strong financial results. For example, the company’s revenue for the first quarter of 2024 was $3.17 billion, closely matching the consensus estimate of $3.22 billion. Such consistency in hitting or exceeding revenue targets highlights the company’s resilient business model and its ability to adapt to market conditions.

Constellation Software’s growth strategy revolves around strategic acquisitions, allowing it to expand its portfolio and enhance its market position. The company’s management has demonstrated a keen ability to identify and integrate value-adding acquisitions, which has been a significant driver of its growth. This approach not only diversifies the company’s revenue streams but also positions it well for long-term growth.

Looking ahead, Constellation Software is expected to continue its strong performance. The company has confirmed that it will release its second-quarter results on Aug. 9, 2024, which investors are eagerly awaiting. The positive momentum from previous quarters suggests that the upcoming results could further bolster investor confidence.

Bottom line

Canadian Apartment Properties REIT offers a balanced investment opportunity with its strong financial performance, strategic growth initiatives, solid balance sheet, and attractive dividend yield. This makes it ideal for passive-income investors.

Meanwhile, Constellation Software offers a compelling mix of consistent earnings, strategic growth through acquisitions, and shareholder rewards. Its strong market position and proven track record make it a solid choice for investors looking to benefit from both growth and stability in the technology sector. With its next earnings report due soon, now could be an opportune time to consider investing in CSU.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Software. The Motley Fool has a disclosure policy.

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