Why You Should Invest CERB Payments Right Now

The CRA could be coming after your CERB payments, so here is why you should invest that money before the agency is at your door.

| More on:
edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

The Canada Emergency Response Benefit (CERB) has been an excellent addition from the federal government for those that need it. With millions of people out of work or on reduced income from the coronavirus, the CERB offers payments of $500 every week for a limit of 16 weeks. Almost 16 million people have applied for the benefit, with just over half of them receiving CERB payments as of writing.

However, come 2021, things could start to get hairy. Right now, the government is solely focused on making sure people are receiving their benefits. Unless it’s glaringly obvious, those that may not necessarily be eligible are still receiving benefits. While that means the Canada Revenue Agency (CRA) may not come calling now, it doesn’t mean they won’t start looking for payments in the year to come.

Eligible or not eligible?

As I mentioned, it may not be immediately clear whether you’re eligible or not for CERB payments. So, let me break it down for you. The benefits from the CERB are for those who have lost their jobs or are on substantially reduced income from the coronavirus. So, if you quit your job voluntarily or make more than you thought you would from self-employment income, for example, the CRA could soon be knocking at your door.

It’s not like you can’t earn income while getting the CERB, but there is a limit. As long as you’re earning no more than $1,000 per month, you can still apply for the CERB. But that’s also only if you earned income of $5,000 or more in 2019 or in the last 12 months before applying for the CERB.

Then there’s the Canada Emergency Wage Subsidy (CEWS). Right now, businesses are starting to open up again across Canada. Canada added almost 290,000 jobs in the month of May. That’s exactly what the government hoped would happen after putting the CEWS into play. The CEWS covers 75% of an employee’s wages, as long as the business is eligible. The idea is to help businesses stay afloat so that they can hire back employees recently let go. So, you could have applied for CERB, received a cheque, but then your employer suddenly hires you back. What now?

Of course, there is the option to send those payments back if you realize you aren’t eligible. That’s what the government is hoping for. But there is also a good opportunity to take that $8,000 and invest it before the government says it’s time to pay it back. You’ll just have to make sure your investment will be greater than the tax you end up paying for collecting the CERB.

Better than CERB

With that influx of cash, it’s a great time to take advantage of sturdy, stable stocks that offer dividends. A great option right now is Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM). The stock is a dividend all star, currently offering a 6.31% dividend yield as of writing. And, as one of Canada’s Big Six banks, it is a great option for long-term investors seeking annual passive income.

Before the market crash, the stock was trading at almost $116 per share. As of writing, the stock trades at about $94 per share. If CIBC manages to get back to pre-crash levels, which it should in the next year, that’s a potential upside of 23% as of writing.

If you take that $8,000 from CERB payments and invest it in CIBC, a year from now when things settle down, you could be looking at an investment of $9,860. On top of that, you will have an annual dividend income $496.40. That’s a grand total of $10,356.40 and gains of $2,356.40. By comparison, that same $8,000 investment before the crash would generate $402.96 in dividends.

Bottom line

It’s a scary time. Having extra cash on hand is never a bad thing, as who knows what the future holds? A great option is to put that cash in a strong stock that offers passive income. That way, you’ll be growing a nest egg for the next rainy day that comes your way. Choosing a bank like CIBC gives you one of the best chances to see that rebound sooner and collect cash quickly.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned.

More on Coronavirus

Business success with growing, rising charts and businessman in background
Coronavirus

1 Growth Stock Every Canadian Investor Should Consider Right Now

This growth stock saw shares pop 10% on June 20, as one analyst stated there is a significant opportunity to…

Read more »

Aircraft wing plane
Coronavirus

Bombardier Stock Merge: What it Means for Investors

Bombardier (TSX:BBD.B) stock went through a reverse stock split on June 13, turning 25 shares into one in one swift…

Read more »

Aircraft wing plane
Coronavirus

Air Canada (TSX:AC) Stock: Ready to Take Off?

While Air Canada is handling what it can control really well, there are many worsening macro headwinds that will likely…

Read more »

rail train
Coronavirus

Bull or Bear: Why Analysts Changed Their Tune on Aecon Stock

Analysts had been champing at the bit for the construction company, but the tides have turned.

Read more »

Biotech stocks
Coronavirus

Is Bellus Health Stock Still a Buy After 30% Earnings Jump?

The biotech continues to make progress on obtaining FDA approval for its chronic-cough therapy.

Read more »

grow dividends
Coronavirus

Goodfood Stock Likely to Double in 2022!

Goodfood (TSX:FOOD) stock has had a huge rise and fall in the last few years. But at $1.85 a share,…

Read more »

grow dividends
Coronavirus

Canfor Stock Pops 5% as Sales Climb 15% YOY

Canfor (TSX:CFP) stock remained positive about its future in the global lumber market after profits climb 15% year over year.

Read more »

edit Safety First illustration
Coronavirus

2 Crash-Proof TSX Stocks I’d Buy With $5,000

These two TSX stocks have proven they can handle this economic downturn and likely will continue to be safe far…

Read more »