a move Tuesday by the federal banking regulatorMost Canadians who invest for retirement hold big Canadian bank stocks directly, in mutual or exchange traded Canadian equity funds, or in company pension plans. Even the Canada Pension Plan owns stock in big Canadian banks.
In comparison, some one-year GICs are paying out over five per cent. Yields from big bank issued GICs are still under five per cent, but in some cases they are higher than the dividend yields on their stocks right now. Here are basic differences to consider when deciding how much of each you would want in your retirement portfolio.As the name implies, the principal and yields on guaranteed investment certificates are guaranteed. Private borrowers issue them but the federal government ultimately backs them up. If Ottawa defaults, we’re all in big trouble.
Unlike GICs, dividend payouts on stocks are at the discretion of the company. Dividends are derived from profits. According to Veritas Investment Research, the new cash requirements placed on the banks will put those profits under pressure. But that doesn’t mean they will continue to rise. The price of any stock at any given time reflects the confidence investors have in the company’s ability to grow profits, also called earnings.