With the TSX Index just breaking out to new all-time highs, Canadian investors may be wondering if it’s a better idea to put excess cash (let’s say $5,000 or so) in stocks or Guaranteed Investment Certificates (GICs) while rates are still at or around 5%.
When it comes to GICs, you’re still getting a great deal, even after the latest round of Bank of Canada rate cuts. Indeed, a 5% guarantee is not bad at all for an investment that won’t cause you to lose capital, even if the economy were to fold line a lawn chair for the summer.
Guarantees are great, but given the momentum behind the TSX Index, it’s also a good idea to diversify across asset classes, most notably stocks, royalty funds, and real estate investment trusts (REITs). In short, GICs remain terrific bets, especially with inflation hovering just below the 3% mark. Scoring a real return north of 2% from a risk-free asset is a sound proposition.
Without further ado, let’s look at two stocks that could easily top the 5% annual gain offered by non-cashable GICs (cashable GICs tend to have lower rates due to better liquidity) at current levels. Of course, even the safest low-beta (which implies less correlation to the rest of the stock market) does not guarantee you won’t face volatility, especially if a black swan swims by or an unforeseen crisis hits (COVID-19 came from out of nowhere just a few years ago).
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Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) is a terrific bank if you’re looking for a good mix of domestic and international banking. With a hard-hit Latin American business that may be in for relief as macro headwinds ease, I view BNS stock as one of the most intriguing high-risk, high-reward types of plays in the banking scene today.
Of course, the depressed valuation multiples make the name far less risky than it used to be. If you’re a young investor who wants a higher growth runway, I’d argue exposure to emerging markets (like Latin America) is very desirable, especially in a time of global economic uncertainty.
With Bank of Nova Scotia stock, you’ll get such exposure at a nice discount. At writing, shares go for 10.6 times trailing price-to-earnings (P/E) ratio to go with a massive 6.64% dividend yield. Though a less-timely bank stock, BNS certainly stands out as one of the cheapest with the potentially lengthiest growth runway.
Intact Financial
Intact Financial (TSX:IFC) is a very well-run property and casualty (P&C) insurer that’s been performing for new investors of late. Now up over 26% in the past two years, IFC is flirting with new all-time highs.
Despite the latest spike, the name remains modestly valued at 27.6 times trailing P/E. It’s not a steal by any means. But with a decently sized 2.1% dividend yield and the means to grow the payout steadily over the years, I’d not shy away from the insurance play as it continues beating the TSX Index by a handsome amount.
With a 0.55 beta, Intact stock also looks more insulated from broader market volatility. Either way, Intact’s thesis seems fully intact for long-term investors seeking to play a very high-quality insurer in a lower-rate climate.
If you seek growth and value, IFC is a great bet. But if you want more income, perhaps BNS is tough to top in this environment.
