Interest rate hikes in the last 18 months have increased GIC (guaranteed income certificates) rates to more than 5.5% in 2023. For example, EQ Bank (TSX: EQB) offers a 1-year GIC rate of 5.6% to investors, while Laurentian Bank of Canada has a 2-year GIC rate of 5.65%.
As inflation in Canada has cooled off in recent months to less than 3%, GIC investments allow you to grow your wealth over time.
What are GICs or guaranteed income certificates?
A GIC is an investment that works as a savings account where you can earn interest on your deposits. You can open a GIC at a bank or a credit union where you deposit a specified sum and let it grow.
But unlike a savings account, GICs have a lock-in period, which may range from a few months to several years. If you withdraw money before your tenure is over, the bank may levy a penalty on the interest earned.
GICs are a safer bet for retirees as they offer fixed returns while the principal amounts up to certain limits are protected by the Canadian Deposit Insurance Corporation.
While GICs are a good investment option for retirees, those with a larger risk appetite can consider investing in quality dividend stocks. Generally, you would want to invest in dividend-paying companies that are able to consistently increase earnings, which should result in regular dividend hikes.
In addition to an attractive yield, quality dividend stocks will also help you benefit from capital gains in the long term, driving overall returns significantly higher. Here are two such TSX dividend stocks you can consider buying today.
Goeasy stock
A Canadian company that operates in the non-prime financial lending space, Goeasy (TSX: GSY) provides investors with a dividend yield of 3.1%. While GSY stock has returned 1,008% in the last 10 years, after adjusting for dividends, it’s also trading 42.5% below all-time highs.
Priced at 9.2 times forward earnings, GSY stock trades at a discount of 40% to consensus price target estimates. Additionally, Goeasy has increased dividends by 25% annually since August 2013.
EQB Inc. stock
Valued at $2.9 billion by market cap, EQB offers shareholders a dividend yield of 2%. EQB has around $108 billion in AUM (assets under management) and operates in segments such as Personal and Commercial Banking.
Despite a tepid lending environment in the last year, EQB reported record earnings in the first half of 2023 due to margin expansion, higher non-interest revenue, portfolio growth, and efficiency improvements.
While earnings grew 70% to $2.98 per share in Q2, the company raised dividends by 23% to $0.38 per share. Priced at 7.2 times forward earnings, EQB stock trades at a discount of 30% to consensus price target estimates.
The Foolish takeaway
So, which between GICs and dividend stocks is a better investment option right now? Well, it basically depends on factors such as your age, financial goals, and risk appetite. Ideally, you need to diversify your investments and hold different asset classes, which lowers overall risk.
For instance, a 30-year-old can hold about 30% of investments in GICs and the rest in equities. For those closer to retirement, GICs may account for a higher portion of their investment portfolios.
