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.

| More on:

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

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.

More on Dividend Stocks

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »

how to save money
Dividend Stocks

The Smartest Dividend Stocks to Buy With $200 Right Now

These smartest dividend stocks can consistently pay and increase their dividends in the coming years, irrespective of the macro uncertainty.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

3 Utility Stocks That Are Smart Buys for Canadians in November

These utility stocks benefit from regulated businesses and generate predictable cash flows that support higher dividend payouts.

Read more »

Start line on the highway
Dividend Stocks

Invest $10,000 in This Dividend Stock for $600 in Passive Income

Do you want to generate passive income? Forget the rental unit! This option will save you the mortgage yet still…

Read more »

Senior uses a laptop computer
Dividend Stocks

1 Reliable Dividend Stock for the Ultimate Retirement Income Stream

TD Bank (TSX:TD) shares are way too cheap with way too swollen a yield for retirees to pass up right…

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

Is Brookfield Infrastructure Partners a Buy for its 4.75% Yield?

Brookfield Infrastructure Partners (BIP) has a 4.75% dividend yield. Is it worth it?

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »