Although inflation may not always make headlines, it quietly eats away at your buying power every year. This is why dividend growth stocks are some of the best investments to buy and hold for the long haul.
Inflation is essentially always present. But when inflation spikes, like it has in recent years, the impact becomes impossible to ignore. Groceries, gas, rent, and everyday essentials all cost more, which means your money needs to work even harder just to maintain its value.
That’s why investing isn’t optional; it’s essential. Leaving your money in cash or low-interest savings accounts may feel safe, but over time, it guarantees you’re losing ground. To truly protect and grow your wealth, you need to earn a return that outpaces inflation. One of the best ways to do that is by owning dividend growth stocks.
Dividend growth stocks offer the perfect balance of stability and upside. These are companies with strong businesses, consistent earnings, and a track record of increasing their dividend payouts year after year.
That growing income not only helps you keep up with inflation, it often beats it. Plus, many dividend growth stocks come from defensive sectors that tend to hold up well even during economic downturns.
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Understanding inflation and why it matters
One thing that’s often misunderstood about inflation is that it’s actually beneficial to have a little inflation. When prices are constantly rising gradually, it encourages spending, supports wage growth, and helps reduce the real value of debt. Central banks even target a modest level of inflation, usually around 2%, to keep the economy balanced.
The real problem comes when inflation runs too hot or sticks around longer than expected. That’s when it starts to compound and really add up. Even inflation of just 3% a year means your money loses nearly 25% of its purchasing power over a decade.
So no matter what, inflation will always be working in the background, and over time, it can seriously erode the value of your savings if you’re not proactive. That’s why owning assets that grow faster than inflation, like dividend growth stocks, is critical to protecting and compounding your wealth over the long term.
A top dividend growth stock in the utility sector
If you’re looking for safe and reliable dividend growth stocks that can protect your capital in times of economic uncertainty or heightened volatility, and also protect your purchasing power from inflation, then the utility sector is one of the best places to start.
Utility stocks are some of the safest and most reliable dividend growth stocks, and Emera (TSX:EMA) is one of the best in the sector.
Because these stocks provide essential services and the government regulates their operations, these companies often have highly predictable revenue and earnings potential, and continue to grow their operations each year.
This not only leads to consistent increases in the dividend each year, but as both the earnings and dividend grow, so too does the share price.
In fact, over the last decade, the Consumer Price Index has risen by roughly 28%, meaning prices are roughly 28% higher now than they were 10 years ago. However, if you had invested in Emera a decade ago, you would have earned a total return of 141% over that stretch, or a compound annual growth rate of 9.2%.
And right now, Emera not only offers a yield of 4.7%, but it has also increased its dividend by more than 18% in the last five years.
Therefore, in order to mitigate the impact inflation has on your finances and ensure your hard-earned capital can grow as efficiently as possible, it’s essential to buy high-quality and reliable dividend growth stocks like Emera.
