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    Home»Blue Chips»Here’s How Stocks and REITs Can Help You Beat Inflation
    Blue Chips

    Here’s How Stocks and REITs Can Help You Beat Inflation

    With inflation rearing its ugly head, you need to park your money in good stocks and REITs to beat it.
    Royston YangBy Royston YangApril 13, 20224 Mins Read
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    I was in for a surprise as I stood in line to order my favourite bowl of wanton noodles last week.

    The uncle told me that the price had risen from S$3 to S$3.50, a jump of around 14%.

    It was the same situation with the drinks stall.

    My favourite cup of teh siu dai (tea with less sugar) now cost S$1.30 instead of S$1.20, for an 8.3% increase.

    What I witnessed was an example of inflation, which is defined as a general rise in the prices of goods and services.

    Singapore’s core inflation stood at 2.2% in February, down from a nine-year high of 2.4% a month ago.

    And if we look at overall inflation, which includes accommodation and private transport costs, this rose to 4.3% in February, up from 4% in the previous month.

    It’s a headache to deal with rising prices as our salaries and bonuses may not keep pace.

    So, what should you do and how can you beat inflation?

    Persistent inflation

    Both the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) have cautioned that global inflation is set to remain high before easing later this year.

    That said, the recent outbreak of the Russia-Ukraine war has further disrupted supply chains that were already impacted by the pandemic.

    Core inflation may hit 3% by the middle of 2022, with the MAS expecting core inflation to hover between 2% to 3% for the year.

    Senior economist Irving Seah from DBS Group (SGX: D05) expects higher inflation to persist for two years due to the planned increase in GST in January 2023 as announced during Singapore’s Budget 2022.

    Investing in REITs

    In light of these projections, you need to take decisive action to combat inflation.

    REITs are a great option as they churn out a steady stream of cash flow in the form of dividends.

    Many REITs sport dividend yields that are higher than the core inflation rate of between 2% to 3%.

    Take Mapletree Industrial Trust (SGX: ME8U), or MIT, for instance.

    The industrial REIT, which owns a diverse portfolio of 143 properties that includes data centres and light industrial buildings, paid out a trailing 12-month distribution per unit (DPU) of S$0.1361 for its fiscal 2022 third quarter.

    The distribution yield stood at 5.1% at the REIT’s unit price of S$2.67.

    Or take Frasers Centrepoint Trust (SGX: J69U), or FCT, a REIT that owns nine retail malls including White Sands, Century Square and Hougang Mall.

    For its fiscal year ended 30 September 2021, FCT paid out a DPU of S$0.12085.

    The REIT’s units provide a trailing 12-month distribution yield of 5%.

    Buying strong, well-managed stocks

    REITs are not the only path to beating inflation.

    Buying a basket of well-managed growth stocks can also achieve the same result.

    The rise in share price can provide you with capital gains that exceed the level of inflation.

    Take DBS Group as a great example.

    Singapore’s largest bank saw its share price rise from S$18.77 five years ago to S$34.05.

    This translates to a compound annual growth rate (CAGR) of 12.6%, beating inflation by a wide margin.

    Blue-chip contract manufacturer Venture Corporation Limited (SGX: V03) has also seen its share price climb from S$11.70 in April 2017 to S$17.17, for a CAGR of 8%.

    And let’s not forget Singapore’s sole stock exchange operator Singapore Exchange Limited (SGX: S68).

    The bourse operator’s share price went from S$7.47 to S$9.92 in the last five years, chalking up a CAGR of 5.8%.

    If you think these returns sound impressive, remember that dividends have not been included in the computation.

    If we add in an average of 3% to 4% dividend yield for each stock, this will bump up their total return CAGR even higher.

    Get Smart: Investing is the way to beat inflation

    The above examples illustrate the power of investing in helping to beat inflation.

    By parking your money in well-run companies and strong REITs, you can enjoy not just a stream of passive income, but also steadily grow your wealth.

    Investing can also help you to achieve your retirement goals as you slowly compound your money.

    So don’t hesitate.

    If you haven’t already, it’s time to start investing to grow your wealth and ensure you stay ahead of inflation.

    Our beginner’s guide to investing is finally here! Many investors took years to understand the principles inside, but you can have it all in one afternoon. If you have just started investing, download our free guide today so you can catch up quickly. Click here to download now.

    Follow us on Facebook and Telegram for the latest investing news and analyses!

    Disclaimer: Royston Yang owns shares of Mapletree Industrial Trust, DBS Group and Singapore Exchange Limited.

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