With some "high-interest" savings accounts paying less than 1 per cent and Canada Savings Bonds yielding a puny 0.4 per cent - the nerve! - these are lean times for conservative, income-seeking investors.
But here's the good news: If you're prepared to take on a little more risk, you can kick sand in the face of those scrawny returns. That's right. Even with today's ultralow interest rates, you can give your portfolio some extra income muscle, and you won't have to put your financial health in jeopardy.
Here are five ways to pump up the yield of your portfolio, along with some of the pitfalls to watch out for.
Dividend-paying stocks
Even though stock markets have come roaring back since the financial crisis, there are still plenty of tempting dividend yields out there. Many of these companies are appropriate for conservative investors.
A prime example is pipeline operator Enbridge Inc., which is yielding 3.6 per cent and has a long history of dividend growth. A staple of income portfolios, Enbridge's regulated pipeline and utility businesses throw off steady cash flows and the company benefits from growth in the oil sands.
"The place I tell people they have to go is to dividend-paying stocks, even though there's no guarantee on the principal," says Norman Levine, managing director, Portfolio Management Corp. "I believe it's a risk worth taking, as long as you buy quality stocks where the dividend is well covered by earnings."
Another favourite of risk-averse investors is pipeline and power company TransCanada Corp., which currently yields 4.6 per cent. Even juicier yields can be found in the telecom sector, where BCE Inc. pays 6.2 per cent and Telus Corp. yields 5.6 per cent. The wild card here is how much these companies will be hurt by new competitors entering the wireless space.
And, of course, our Canadian banks are legendary dividend payers. Currently, the average yield among the Big Five is 4.4 per cent
Corporate bonds
Had a look at government bonds lately? Ouch. The yields are so low it hardly seems worth the effort. But you can improve your yield, without taking on excessive risk, by shopping in the corporate sector.
"I've been buying high-grade corporate bonds," says Harry Koza, senior market analyst for Thomson Reuters. He owns Shaw Communications Inc., TransAlta Corp. and Canadian Natural Resources Ltd., among other bonds.
"I stay away from junk bonds. I just want to buy it and forget about it."
Buying individual bonds can be intimidating for do-it-yourself investors, who have to understand complex yield-to-maturity calculations and call features. What's more, retail customers don't get the best price because they buy in small quantities.
One alternative is to buy an exchange-traded fund such as the iShares CDN Corporate Bond Index Fund, which invests in more than 300 bonds across various industries and has a low management expense ratio of 0.4 per cent.
Another option is the Claymore Laddered Corporate Bond ETF, which has an MER of 0.25 per cent and holds 25 bonds with maturities ranging from one to five years. Corporate bond ETFs "are a great way of doing it," says Mr. Koza, who owns both ETFs. "They're better than a bond mutual fund, because the MER is tiny."
One drawback of bond ETFs is that they never mature, so they lack the certainty of an individual bond that returns its principal on a certain date. For investors, this means that, if interest rates rise, the ETF may be down in price when they need their money. But the low costs and instant diversification are a big plus.
Income trusts
