COVID-19 Will Cause a Huge Increase in Bankruptcies

The crisis like no other in 2020 leaves little room for Canadians to avert bankruptcies. However, people with investment income from the Toronto Dominion Bank stock have extra economic support.

| More on:
A close up image of Canadian $20 Dollar bills

Image source: Getty Images

Statistics Canada reports that Canadians’ debt to disposable income ratio slid 152% between April and June versus the 175.4% reading in the first quarter of 2020. By the end of June, households owed $1.58 for every dollar spent. Since 2017, the ratio stayed at the 170% range until the surprise drop this year.

The debt picture is encouraging, according to consumer insolvencies firm Hoyes & Michalos. However, the firm also says it’s misleading because of what lies beneath. A wave of bankruptcies might emerge and change the complexion in the ensuing months.

What lies beneath

Consumer insolvencies were already growing by the double digits since the start of 2019. People were borrowing extensively because of the low interest-rate environment. It came to a halt beginning in March. Court shutdowns also prevented debtors from taking legal action.

Canadians didn’t stumble in financial misery because of government intervention. The rollout of massive income-support programs nationwide kept people afloat during the pandemic. One of every six Canadian homeowners with outstanding mortgages also took advantage of payment deferral programs.

Economists fear household indebtedness and delinquency rates could begin to rise in late 2020 and extend to 2021. The government’s COVID-19 Response Plan averted a collapse of the economy and pushed savings rate to a record-high 28%. Although signs of recovery are evident, people should still brace for more challenging times.

Durable investment income

Investment income provides added economic support during emergencies. Canadians can mitigate the risks by owning shares of an enterprise with quality earnings and strong dividend growth. Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is noteworthy for its durable dividend payouts.

The second-largest lender in Canada was the only company that reported revenue and profit growth in the 2008 financial crisis. Similarly, its dividend track record is an incredible 16 decades. TD’s banking operations in its home country of Canada and the U.S. contribute to its growth and stability.

COVID-19 and the low interest rate environment are the headwinds banks are facing in 2020. But because TD is a strong brand that possesses strong pricing power. You can purchase this rare income-producing asset and hold forever.

This $100 billion banking institution is playing a crucial role in averting a housing crisis. TD Charitable Foundation has earmarked $4.9 million as monetary grants to renters at risk of losing their homes. The rent relief is vital as eviction bans end. The foundation’s goal is to stabilize renters as they navigate through economic uncertainty.

For prospective investors, TD pays a 5.05% dividend. If you invest today, the price is trading at a discount (11.5% off year-to-date). An $80,000 position will produce $1,010 in quarterly passive income. More important, your dividend earning is for a lifetime.

Post-pandemic outlook

The 2020 health crisis is eclipsing the impact of the 2008 financial crisis. The scale is unprecedented that federal deficit and national debt are swelling to epic proportions. No can is sure when normalcy will return. Some businesses might not be around to see the new normal.

Canada was in good economic and fiscal shape before the pandemic. Now, it will take a couple of years before its fiscal track returns to pre-corona levels. COVID-19 will leave higher levels of debt in its wake.

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 Christopher Liew has no position in any of the stocks mentioned.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »