The upside of the rising rate environment is the rising savings account and GIC rates. Throw in greater yields on shorter term bond funds as well. We can even go one step further; the rising rates for ‘risk-free’ cash also leads to bigger dividends. The big dividend payers, often call bond proxies, compete with the risk free yield. Investors have bailed on the big Canadian dividend payers as more money flows to savings accounts and GICs. As stock prices fall the dividend yield goes up. Recently, way up. It’s a good time to double dip on the yield front. We’re putting your cash to work on the Sunday Reads.
It’s a good time to be a saver, again. Ya, it’s been a while. Here’s a great list comparing GIC rates in Canada. On that site you will also find the top savings account rates in Canada.
It seems like every week I am updating the post with increasing GIC rates at EQ Bank.
Investors can also take advantage of cash ETFs
- Evolve’s High Interest Savings Account Fund – HISA-NE
- CI First Asset High Interest Savings ETF – CSAV-T
- Horizons Cash Maximizer ETF – HSAV-T
- Horizons High Interest Savings ETF – CASH-T
- Ninepoint High Interest Savings Fund ETF – NSAV-NE
- Purpose High Interest Savings ETF – PSA-T
Keep in mind that the cash ETFs are not covered by CDIC insurance.
BUY CASH ETFS FOR FEE AT QUESTRADE
We can also look to ultra short term treasuries in Canada and the U.S.
Horizons offer CBIL-T for Canadian accounts and UBIL.U for U.S. dollar accounts. We might consider that risk-free yield. The yields are attractive. Ultra short term bonds are cash-like.
I am putting both of those ETFs to work.
Horizons also recently added a U.S. savings account ETF.
Side note: Use your TFSA for growth and use a taxable account for emergency fund.
Big dividends’ big trouble = big yields
This week, Mark commented on the tough times for Canadian high dividend stocks. We should not discount the risks with respect to many of the big dividend payers, but there’s no question that yields are on the rise. A few examples …
- BCE.T = 7.55%
- ENB.T = 8.16%
- TRP.T = 8.11%
- BNS.T = 7.10%
- TD.T = 4.84%
Historically, these types of yield are flashing incredible value. About 20% of TSX companies carry a yield of more than 5%, up from just 8% two years ago.
Of course, this is not advice or a recommendation, I’m happy to add. Investors should do their own due dilligence.
I added to Vanguard’s VDY-T in a few accounts this past week. And I’ve also added to bonds (long and short) and Canadian oil and gas stocks.
Big Dividend Vanguard’s VDY vs iShares XEI.
While the big dividends are enticing we should always keep greater sector and geographic diversification in mind. I like the framing in this post on Yahoo!
Currie also said that investors should make sure you are diversified across a broad range of sectors, including growth stocks that tend to have lower or no dividends.
“Most of these companies we’re talking about are fundamentally fine… so don’t panic, but I would consider some growth names as well,” Currie said.
Divdends are no longer created equal
And from Craig Basinger from Purpose Investments …
It’s also a good opportunity for investors to be strategic when it comes to dividends. Basinger says in the past, it didn’t necessarily matter how you were getting dividend exposure in your portfolio, because falling yields made all dividends incrementally more attractive and “lifted all boats in the dividend space.”
“We’re seeing that the factors driving dividend performance are changing, and I think that’s creating an environment where having exposure to different factors becomes important,” he said.
All said, it’s a wonderful time to add some yield by way of cash and dividends – that is a very good opportunity for retirees and near retirees preparing for that retirement start date. It’s good for those who create balanced and lower risk portfolios.
Adding more bonds to the portfolio
Yesterday I posted – when should you rebalance your portfolio?
A reader wanted to know the difference between the TLT and XBB ETFs.
I offered this reply …
Hi Blair, with TLT you get the maximum potential for inverse relationship to a severe stock market correction. That is, it is stock market insurance or hedge. On the other side it has the greatest risk of a price decline (lost value) if rates keep increasing. You also get U.S. currency exposure with TLT.
XBB is Canadian of course and buys ‘the bond market’. The average duration for XBB is just below 7 years. TLT is about 25 years. The greater the duration the more risk or reward.
More Sunday Reads
At My Own Advisor Mark offers the costs to raise children.
At Findependence Hub we look at the uncertain future of globalization.
For weekly wraps we always check in with Dividend Hawk. I’m with Hawk on receiving Pepsi and Telus dividends last week.
And for the reads and podcasts head on over to Banker on Wheels.
Here’s forget market timing and random thoughts from Taiwan from Bob at Tawcan.
A dividend update on All About The Dividends.
Rob at Passive Canadian Income also gives us the portfolio and dividend update.
And stocktrades offers their favourite Canadian oil and gas stocks.
And yes, given the horrific events of this weekend, please …
Cut The Crap Investing – help yourself …
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Cut the Crap Investing readers can earn a break on fees at Questrade by way of that partnership link. At Questrade, you can buy ETFs for free.
I have partnerships with several of the leading Canadian Robo Advisors such as Justwealth, BMO Smartfolio, Nest Wealth and Questwealth from Questrade.
Here’s Canada’s top-performing Robo Advisor, Justwealth. You can get advice, planning and l0w-fee ETF portfolios all at one shop.
Consider Justwealth for RESP accounts. That is THE option in Canada with target date funds that adjust the risk level as the student approaches the College or University start date.
CASHFLOWS & PORTFOLIOS
The self-directed investor might consider the service provided by Mark Seed from My Own Advisor. He runs Cashflows & Portfolios where they will provide options for that optimal retirement funding strategy. That service is provided for a very reasonable fee.
If you do head to Cashflow & Portfolios (as do many Cut The Crap Investing readers), be sure to tell them Cut The Crap Investing sent ya.
OUR SAVINGS ACCOUNTS
Make your cash work a lot harder at EQ Bank. RRSP and TFSA account savings rates are at 2.5% and 3.5%. You’ll find some higher rates on GICs, recently updated and increased to 3-5%. They also offer U.S. dollar accounts. We use EQ Bank, they have been awesome.
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Hi Dale
Are you able to tell me whether or not the PSA distributions are treated as interest income, at marginal rate or capital gains by the CRA?
Purpose High-Interest Savings ETF (TSE:PSA)
I can’t seem to find clear information regarding the taxation here. I am paid monthly distributions but they remain inside the ETF and is reinvested there.
Looking ahead to my 2023 CRA tax return and taxes owed.
Any information is greatly appreciated.
Thank you.
Hi Shelley it is interest income in a taxable account. It will be of no concern if held in an RRSP, RRIF or TFSA of course as those are tax sheltered.
With RRSP and RRIF you are taxed on the amount that you redeem for spending, that is when you deregister funds.
“Higher for Longer” could mean lower growth and extended lower values for dividend payers. Could we be entering a long stagflation?
Hey Steve, many suggest a period of stagflation. But it is not likely to look like the 70’s. Every period is unique.
But we never know what we are going to get.