The TSX is at a record high, even as unemployment ticks up and recession risks rise. In these uncertain economic conditions Canadian investors are wondering where to allocate cash that is inside their self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on income and long-term total returns.
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GICs or Dividend Stocks
Guaranteed Investment Certificates (GICs) offer capital protection while providing a fixed return during the term of the certificate. As long as the GIC is purchased from a Canada Deposit Insurance Corporation (CDIC) member and is within the $100,000 limit, the government guarantees the funds in the event the issuing company goes bankrupt.
GIC rates soared as high as 6% in late 2023, driven by aggressive interest rate hikes in Canada. Financial institutions set their GIC rates based on interest rates and yields on government bonds. GIC rates began to drop in 2024 as bond markets started to anticipate rate cuts. Those cuts arrived in the second half of last year and continued into the first part of 2025.
Non-cashable GIC rates are currently available in the 3% to 3.75% range, depending on the issuer and the term. This is still comfortably above the current rate of inflation, so it makes sense for investors to hold some GICs in their portfolios.
The downside of a non-cashable GIC is that the funds are unavailable during the term of the certificate. In addition, the rate paid is fixed for the term and the rates available for reinvestment when the GIC matures might be lower.
Dividend stocks often provide better yields than the rates offered on GICs. This is due to the added risk of owning the stock. Share prices can fall below the purchase price and dividends are not 100% safe. The upside is that stocks offer more capital flexibility. Shares can be sold to immediately access funds that might be needed for an emergency or purchase.
Additionally, dividend increases raise the yield on the initial investment.
Enbridge (TSX: ENB) is a good example of a high-yield dividend stock that steadily raises the distribution. The board has increased the dividend annually for the past 30 years.
Enbridge grows through acquisitions and development projects. The company spent US$14 billion in 2024 to buy three natural gas utilities in the United States. Enbridge is also working on a $28 billion capital program that will boost earnings over the next few years. The contributions from the new assets should support ongoing dividend growth.
The bottom line
The right mix of GICs and dividend stocks for a portfolio is different for every investor, depending on risk tolerance, need for access to the capital, and the desired returns.
In the current market, investors can quite easily put together a diversified portfolio of GICs and quality TSX dividend stocks to get an average return of at least 4%. That would provide annual income of $1,200 on a $30,000 portfolio while reducing risk and offering potential for some capital gains if stock prices rise.
