Watching your savings slowly diminish can be disheartening. Inflation erodes the purchasing power of your hard-earned money, and without a plan, your savings might not stretch as far as you’d like. Fortunately, there’s a way to combat this: investing in high-yield dividend stocks. These stocks can provide regular income through dividend payouts, helping to offset rising costs. The key is to find solid dividend-paying companies with yields that are not only higher than inflation but also show steady growth over time.
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What’s a “sufficiently high” yield?
To protect your savings, it’s essential to target dividend stocks that provide a yield sufficient to outpace inflation. Historically, the long-term average inflation rate since 1915 is 3.14%, according to Trading Economics. Therefore, you might want to focus on dividend yields that are 1.5 to two times this rate, or between 4.7% and 6.3%.
Using iShares S&P/TSX 60 Index ETF (TSX: XIU) as a Canadian stock market proxy, it offers a yield of around 2.9%. To stay ahead of inflation, investors would ideally look for dividend yields ranging from 4.3% to 5.8%. This yield range strikes a balance between offering a good return and avoiding excessive risk — higher yields can sometimes signal higher risks, such as a potential dividend cut.
1. Brookfield Infrastructure Partners
With a portfolio of global infrastructure assets spanning utilities, transportation, energy, and data, Brookfield Infrastructure Partners (TSX: BIP.UN) is well-positioned for steady cash flow generation. The company’s cash flows are supported by long-term contracts and regulatory frameworks, which provide long-term stability, making it a good idea for income-focused investors seeking reliable dividends.
Brookfield Infrastructure’s geographic diversification across North America, Europe, and Asia further mitigates risks, ensuring that the company can weather market fluctuations. Over the past decade, BIP has demonstrated impressive dividend growth with a 7.7% annual increase.
Just this year, it raised its distribution by 6.2%, outperforming the utility sector. Currently priced at $43.31 per unit, the Canadian dividend knight offers a cash distribution yield of nearly 5.7%. This is higher than its 10-year average yield of 4.5%, suggesting that the stock is currently undervalued. Analysts also believe it is trading at a discount of around 20%, presenting an attractive opportunity for long-term investors.
2. Exchange Income Corp.
Exchange Income (TSX: EIF) has a portfolio of subsidiaries in aerospace and aviation, and manufacturing, providing essential products and services to niche markets. Its focus on critical industries allows it to generate stable cash flows, even during economic downturns. This stability should attract investors who seek a steady income stream while minimizing risk.
With a solid track record of dividend growth — averaging 4.6% over the last decade — the company continues to be a solid candidate for income investors. This month, Scotia Capital expressed optimism about the company, highlighting that the uncertainty around U.S. tariffs could actually benefit Exchange Income. At $50.19 per share, the monthly dividend stock offers a dividend yield of about 5.3%. Importantly, analysts believe the stock is currently undervalued by approximately 28%. Given its strong cash flow generation and ongoing strategic acquisitions, Exchange Income has the potential for continued growth, making it a good consideration for investors looking for reliable income.
The Foolish investor takeaway
Inflation doesn’t have to diminish the value of your savings. By investing in high-quality dividend stocks like Brookfield Infrastructure Partners and Exchange Income Corp., you can generate consistent income streams that help offset rising living costs. Both companies offer attractive dividend yields of 5-6%, along with the potential for steady growth. Whether you’re looking to safeguard your wealth from inflation or create a reliable income source, these dividend stocks can help keep your savings working for you.
