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If you want compelling tips on how to generate income when rates on guaranteed investment certificates (GICs), money-market funds and dividend-paying stocks are falling – or insights into anything else, for that matter – ask Globe and Mail readers.
I did that last week when I wrote about shrinking yields. You came through in a big way, with loads of helpful advice that is still coming in – confirming my suspicion that this is one of the best investment roundtables anyone could hope for.
Beat that, Barron’s.
The setup to my question last week was straightforward. Yields are falling as interest rates decline and share prices rise. (Missed the newsletter? Here’s a link.)
Lower yields aren’t a big problem for anyone still sitting on five-year GICs yielding 5 per cent or dividend-paying stocks that have rallied over the past couple of years. But as GICs mature, dividends pile up or if you’re just starting out, today’s lower-yielding environment can be challenging.
The solution?
Here are several responses, edited for length and clarity, from readers who e-mailed me. I’ve identified them with initials so that no one feels exposed.
Consider the advantages of investing in companies that buy back their own shares, offering an attractive alternative to dividends.
M.C. provided an example: “Suncor Energy Inc. just increased their share buyback cadence to a minimum annualized pace of $4-billion. With the reduced number of shares outstanding, they could increase the dividend by 4 per cent at no additional net cost to the company, thereby ‘inflation protecting’ the dividend income stream to shareholders in future years.”
Jump on special promotional deals on savings accounts.
S.S. grabbed an offer from Tangerine Bank: “I have a substantial portion of my portfolio in income-generating stocks and real estate investment trusts with dividend yields between 3.0 per cent to 5.78 per cent. But Tangerine Bank is currently offering attractive rates based on your deposits with them. Pretty good income for a totally safe investment.”
Other banks are competing for new customers with annualized yields of 4.5 per cent or more right now. Well, for a limited time; be sure to read the fine print.
Look beyond the usual dividend suspects.
Banks and utilities form the backbone of many dividend-generating portfolios. But some readers offered suggestions for higher-yielding stocks that have lower profiles. Yes, higher yields can suggest more risk, lower distribution growth – or both – so you have to be careful.
Some stocks that have been championed: South Bow Corp. (SOBO-T, 6 per cent); KP Tissue Inc. (KPT-T, 6.7 per cent); A&W Food Services of Canada Inc. (AW-T, 5.2 per cent); SmartCentres REIT (SRU-UN, 6.8 per cent); MCAN Mortgage Corp. (MKP-T, 7.2 per cent); Canoe EIT Income Fund (EIT-UN-T, 8.6 per cent).
Yes, there are plenty of others – and some readers highlighted the attraction of covered call funds and split share funds that could be worth a further investigation.
Investors can do just fine in a low-yielding environment if they tune out the noise and focus on long-term returns.
From I.D.: “With blue-chip dividend stocks, I am always getting benefit via growth or dividend, so it makes sense to resist the urge to panic at short-term geopolitical or market hiccups. Stay the course. This has worked well enough for me to retire on the proceeds, having no company pension at all.”
Thank you to everyone who responded. The bigger the roundtable, the better.
Here’s a related question that could help with an upcoming article on preferred shares. Do you own individual shares or an exchange-traded fund? Or both? I’m at dberman@globeandmail.com.
Chart of the day
Canadian savers catch a second wind as Middle East war ignites rate-hike hopes. Story here.
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New research that caught my eye
Credit cards are fascinating financial products: They drive consumption, charge high rates and deliver outsized profits to banks. Not exactly dull. The Federal Reserve Bank of New York has an interesting academic paper, titled “Credit Card Banking” (March, 2025), that takes a detailed look at that last point – the business case. Teaser: Credit card balances account for just 4.5 per cent of bank balance sheets, but drive 16.6 per cent of interest income. You could get angry ... or buy a bank stock.