Back when interest rates were low, it was common for people to question the wisdom of keeping money in a savings account.
Like a dividend stock, for example. Recently, a reader asked if it was better to have money in a “solid blue chip utility stock with a good dividend.” The answer is no. A savings account is better for two reasons - safety and liquidity., a lot of big names in Canadian dividend investing have been hammered this year. There are a few reasons for this, but the main issue is high interest rates.
Think of the extra returns from dividends compared to savings as a risk premium. Risk of what? Falling share prices, for one thing. Your attention is drawn to a former dividend stalwart, Algonquin Power & Utilities Corp. , which is down about 47 per cent in the past 12 months. The reason for this decline highlights another risk, that of dividend cuts. Algonquin lowered its dividend by 40 per cent earlier this year to shore up its financial position.