Demand for guaranteed investment certificates is way up as investors take advantage of an emerging opportunity to get a decent and safe return.
GICs maturing in three to five years can be had with yields of 4 per cent or slightly more in early May. If you stay within deposit insurance limits, that money is guaranteed. Open to a better yield, 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. The shares of these stocks can fall hard if the broader market takes a plunge. Don’t expect to sidestep the next crash because you have a utility or grocery stock.
There is also some risk associated with the dividend payments, although it’s moderate in the case of established blue chips. A few blue chips have cut dividends over the decades – Manulife Financial comes to mind, and so does TC Energy back when it was TransCanada PipeLines. Energy companies may adjust dividends up and down according to oil prices.
The most attractive dividend payers increase their payouts regularly, often enough to offset inflation. GIC rates may be up a lot in the past year, but they still lag inflation and offer no potential to address future increases in the cost of living.
Here are 10 blue chip dividend payers with yields above 4.15 per cent, 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 per cent on an annualized five-year basis.
-Enbridge Inc. (ENB-T): Yield just below 6 per cent and five-year dividend growth of 9.5 per cent (the recent growth rate has slowed)
-BCE Inc. (BCE-T): Yield of 5.3 per cent and five-year dividend growth of 5.1 per cent
-Power Corp. of Canada (POW-T): A 5.3 per cent yield and dividend growth of 6.9 per cent
-Manulife Financial (MFC-T): Yield 5.2 per cent, dividend growth 9.6 per cent
-Pembina Pipeline Corp. (PPL-T): Yield 5.1 per cent, dividend growth 5.8 per cent
-TC Energy Corp. (TRP-T): Yield 5.1 pre cent, dividend growth 9 per cent
-Bank of Nova Scotia (BNS-T): Yield 4.8 per cent, dividend growth 4.6 per cent
-Algonquin Power and Utilities Corp. (AQN-T): Yield 4.8 per cent, dividend growth 10 per cent
-Canadian Imperial Bank of Commerce (CM-T): Yield 4.5 per cent, dividend growth 4.2 per cent
-Emera Inc. (EMA-T): Yield 4.3 per cent, dividend growth 5.2 per cent
GICs are the way to go if you want a straight 4 per cent, with zero drama. These dividend payers offer more both now and in the future, but there will be drama.
-- Rob Carrick, personal finance columnist
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Stocks to ponder
TC Energy Corp. (TRP-T) The formerly named TransCanada Corp. may be just the antidote investors need to cope with the current global turmoil, says dividend growth investor John Heinzl. It has a recession-resistant, low-risk business model, with lots 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 that is nearing strong technical support on the charts. The average analyst one-year target price implies a potential price return of 31 per cent over the next year, not including the attractive 7 per cent yield. The company provides capital to private companies, referred to as “partners,” in exchange for income including royalties, dividends and interest. Jennifer Dowty reviews what investors need to know about the trust before making an investment decision.
The hidden, but powerful, forces behind the stock market’s nasty sell-off
Expected interest rate hikes were always expected to be negative for growth stocks. But the rout hasn’t stopped there - it’s spread to the broader market, with the S&P 500 index, the benchmark for North American equities, down 14 per cent year to date. There are some obvious explanations for this. To start, software is the new oil sector, and the S&P 500 is now heavily weighted to tech stocks. But there’s much more to it. Other very strong forces are also at play, and they rarely get enough attention or respect. Chief among them: The role margin debt plays in market downturns, the record inflation in financial asset prices since the 2008-09 global financial crisis and – most finicky of all – irrational investor psychology. Tim Kiladze tells us more.
Ian McGugan: Will central banks get inflation under control?
Canadian telecom stocks hold up well despite rising interest rates
Rising interest rates are sending tremors through the stock and bond markets this year, but Canadian telecommunications stocks have been holding up well. If the volatility persists, they are likely to remain go-to bets among rattled investors. David Berman explains why.
There’s value in the wreckage of the Canadian tech sector, if you know where to look
A frantic undoing of the pandemic-era tech stock mania has clobbered the entirety of the Canadian IT sector, erasing two years’ worth of soaring gains in a little more than four months. Last week, flashes of panic selling took what has been a harsh but orderly sell-off to alarming proportions, turning the software space into a minefield for investors. But there are rare opportunities emerging, if you tread lightly. Tim Shufelt tells us more.
Betrayed by bonds and worried about stocks, investors are turning to GICs
We have ourselves a bull market in the unlikeliest of places – guaranteed investment certificates. Worn down by bad news both in and out of the financial world, investors are turning to GICs for a combination of much-improved interest rates and safety. Rob Carrick looks at just how fast GICs are flying off shelves and the new juicy rates they now offer.
Why this money manager is buying Walt Disney stock while adding cash to the portfolio
Portfolio manager Paul Harris believes the biggest mistake investors can make is to sell stocks when markets swoon. To him, the better move is to sit tight and ride out the volatility or – if you’re brave and have extra cash – start buying. Harris, who oversees about $120-million in assets, likes stocks behind iconic brands, such as Disney and Visa, and high-performing names, such as Constellation Software, with strong free cash flow that’s growing. Brenda Bouw found out more.
Others (for subscribers)
Monday’s Insider Report: CN Rail’s new CEO buys over $500,000 in shares
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Ask Globe Investor
Question: Does withholding tax apply to U.S. dollar dividends paid by Canadian companies such as Brookfield Asset Management Inc. and Nutrien Ltd.? Also, is it possible to easily direct U.S. dollar dividends to a separate U.S. dollar account at major banking institutions in Canada in order to avoid currency conversion costs? We would like to use our U.S. dollars for travel.
Answer: Dividends paid in U.S. dollars by U.S.-based companies are generally subject to withholding tax, except when the shares are held in a registered retirement savings plan, registered retirement income fund or another account that specifically provides retirement income. Tax-free savings accounts and registered education savings plans do not qualify for this exemption.
However, if a Canadian company declares dividends in U.S. dollars – as many do – U.S. withholding tax does not apply. This is true whether the shares are held in a non-registered account, RRSP, RRIF, TFSA or any other registered account. What’s more, U.S. dollar dividends declared by Canadian companies generally still qualify for the dividend tax credit. You can confirm this by reading the company’s latest dividend announcement or visiting the dividend section of its website.
So, no, you don’t need to worry about withholding tax on U.S. dividends from the Canadian stocks you mentioned.
As for avoiding currency conversion costs, it should be relatively straightforward. Generally, for Canadian companies such as Brookfield and Nutrien that are dual-listed on both a Canadian and a U.S. stock exchange, you can choose to hold the shares on either the Canadian or U.S. side of your brokerage account to match the currency in which you wish to receive the dividends. To withdraw U.S. dollars, you would likely need to open a U.S. dollar bank account to receive the transfer. Check with your broker to see what options are available for withdrawing U.S. funds without converting them to Canadian currency.
What’s up in the days ahead
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Compiled by Globe Investor Staff