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Demand for Guaranteed Investment Certificates is on the rise as investors take advantage of an emerging opportunity to earn a decent and safe return.
GICs maturing in three to five years can be had with returns of 4% or slightly more in early May. If you stay within the deposit insurance limits, that money is guaranteed. Open to a better return, but with more risk? Some blue-chip dividend stocks might be what you’re looking for.
We need to be clear about the risk of dividend stocks versus GICs. Shares of these stocks can fall hard if the broader market dips. Don’t expect to avoid the next crash because you have a stock of utilities or groceries.
There is also some risk associated with dividend payouts, although it is moderate in the case of established blue chips. A few blue chips have cut their dividends over the decades – Manulife Financial comes to mind, as does TC Energy when it was TransCanada PipeLines. Energy companies can adjust dividends up and down based on oil prices.
The most attractive dividend payers regularly increase their payouts, often enough to offset inflation. GIC rates may have risen a lot over the past year, but they still lag inflation and offer no potential to meet future increases in the cost of living.
Here are 10 top dividend payers with yields above 4.15%, which was the best five-year GIC rate available as of the first week of May. Each has increased its dividend by at least 4% on a five-year annualized basis.
–Enbridge Inc. (ENB-T): yield slightly below 6% and five-year dividend growth of 9.5% (recent rate of growth has slowed)
–BCE Inc. (BCE-T): yield of 5.3% and dividend growth over five years of 5.1%
–Power Corporation of Canada (POW-T): 5.3% yield and 6.9% dividend growth
–Manulife Financial (MFC-T): 5.2% yield, 9.6% dividend growth
–Pembina Pipeline Corp. (PPL-T): 5.1% yield, 5.8% dividend growth
–TC Energy Corp. (TRP-T): 5.1% yield, 9% dividend growth
–Bank of Nova Scotia (BNS-T): 4.8% yield, 4.6% dividend growth
–Algonquin Power and Utilities Corp. (AQN-T): 4.8% yield, 10% dividend growth
–Canadian Imperial Bank of Commerce (CM-T): 4.5% yield, 4.2% dividend growth
–Emera Inc. (EMA-T): 4.3% yield, 5.2% dividend growth
GICs are the way to go if you want 4% straight, drama-free. These dividend payers offer more now and in the future, but there will be drama.
— Rob Carrick, personal finance columnist
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actions to ponder
TC Energy Corp. (TRP-T) The former TransCanada Corp. could be the antidote investors need to weather the current global turmoil, according to dividend growth investor John Heinzl. It has a recession-proof, low-risk business model with plenty of growth opportunities. Its dividend is well protected and growing, and the stock is trading at a reasonable valuation.
Alaris Equity Partners Income Trust (AD-UN-T) This is a high yielding trust approaching strong technical support on the cards. The one-year average analyst target price implies a potential price return of 31% over the next year, not including the attractive return of 7%. The company provides capital to private companies, called “partners”, in exchange for income including royalties, dividends and interest. Jennifer Dowty reviews what investors need to know about trusts before making an investment decision.
The summary
The hidden, yet powerful, forces behind the stock market selloff
Expected interest rate hikes were still expected to be negative for growth stocks. But the rout didn’t end there – it spread across the broader market, with the S&P 500 Index, the benchmark for North American stocks, down 14% since the start. of the year. There are obvious explanations for this. For starters, software is the new oil sector, and the S&P 500 is now heavily weighted in tech stocks. But there is much more than that. Other very powerful forces are also at play, and they rarely get enough attention or respect. Chief among them: the role margin debt plays in market downturns, record financial asset price inflation since the 2008-2009 global financial crisis, and – most finicky of all – irrational psychology investors. Tim Kiladze tells us more.
Also see:
Battered US stocks may not be bargains as investors brace for inflation data
Ian McGugan: Will central banks get inflation under control?
Canadian telecom stocks holding up well despite rising interest rates
Rising interest rates are rocking stock and bond markets this year, but Canadian telecommunications stocks have held up well. If volatility persists, they will likely remain strong bets among shaken investors. David Berman explains why.
There’s Value in the Wreckage of Canada’s Tech Sector, If You Know Where to Look
A frenzied dismantling of the pandemic-era tech stock craze has rattled the entire Canadian IT sector, wiping out two years of skyrocketing gains in just over four months. Last week, flashes of panic selling took what was a tough but orderly selloff to alarming proportions, turning the software space into a minefield for investors. But there are rare opportunities that emerge, if you tread lightly. Tim Shufelt tells us more.
Betrayed by bonds and worried about stocks, investors turn to GICs
We ourselves have a bull market in the most unlikely places – guaranteed investment certificates. Exhausted by bad news both inside and outside the financial world, investors are turning to GICs for a combination of significantly improved interest rates and security. Rob Carrick looks at how fast GICs are flying and the juicy new rates they’re now offering.
Why This Fund Manager Is Buying Walt Disney Stock While Adding Cash To The Portfolio
Portfolio manager Paul Harris believes the biggest mistake investors can make is selling stocks when markets are slumping. For him, the best thing to do is sit still and ride out the volatility or, if you’re brave and have some extra cash, start buying. Harris, which oversees about $120 million in assets, likes the stocks behind iconic brands, like Disney and Visa, and high-performing names, like Constellation Software, with strong and growing free cash flow. Brenda Bouw learned more.
Others (for subscribers)
Monday analyst upgrades and downgrades
Monday Insider Report: New CN Rail CEO buys over $500,000 in stock
Globe Advisor
Uranium ETF launches follow frenetic fund activity in the sector
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Ask Globe Investor
Question: Does withholding tax apply to US dollar dividends paid by Canadian companies such as Brookfield Asset Management Inc. and Nutrien Ltd.? Also, is it possible to easily direct US dollar dividends to a separate US dollar account with major banking institutions in Canada to avoid currency conversion fees? We would like to use our US dollars to travel.
To respond: Dividends paid in U.S. dollars by U.S.-based corporations are generally subject to withholding tax, except when the shares are held in a registered retirement savings plan, registered retirement income fund, or other account that specifically provides retirement income. Tax-Free Savings Accounts and Registered Education Savings Plans are not eligible for this exemption.
However, if a Canadian corporation declares dividends in US dollars – as many do – US withholding tax does not apply. This is true whether the shares are held in a non-registered account, an RRSP, RRIF, TFSA or any other registered account. In addition, US dollar dividends declared by Canadian corporations are generally still eligible for the dividend tax credit. You can confirm this by reading the company’s latest dividend announcement or by visiting the dividend section of its website.
So, no, you don’t have to worry about US dividend withholding tax on the Canadian stocks you mentioned.
As for avoiding currency conversion fees, it should be relatively simple. Generally, for Canadian companies such as Brookfield and Nutrien that are listed on both a Canadian exchange and a US exchange, you can choose to hold the shares on the Canadian or US side of your brokerage account to match the currency. in which you wish to receive the dividends. To withdraw US dollars, you will likely need to open a US dollar bank account to receive the transfer. Check with your broker for the options available to withdraw US funds without converting them to Canadian currency.
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Compiled by Globe Investor staff
