The 8.97% Monthly Dividend That Beats Every GIC Rate

Explore the impact of interest rate changes on GIC rates and discover alternative investment options worth considering.

Puja Tayal

Author Bio

Puja Tayal grew up in a small-business family where dinner conversations often centred on working capital and savings. Her early experiences with investing, particularly during the 2008 financial crisis, shaped her approach to understanding markets and evaluating investment opportunities. She began her career at a mutual fund company before moving into investor education and financial writing for asset and wealth management firms. Before joining The Motley Fool, Puja wrote for Market Realist, where she extensively covered the semiconductor industry. Her published work has also appeared in The Indian Express. Puja believes every stock has a story that can help investors understand its potential returns. She combines business analysis with different investing approaches to help investors make informed decisions and align their portfolios with their long-term financial goals. Outside of finance, Puja enjoys long drives, catching up with friends, watching superhero and science-fiction movies, and managing her family portfolio. She also has a keen interest in artificial intelligence and its potential to reshape the world.

Education

Bachelor's degree in Accounting and Finance, University of Mumbai (2007)
CFA Level I

Areas of Expertise

Qualitative company analysis, management strategy, risk assessment, long-term investing, portfolio diversification and rebalancing, dividend reinvestment, cyclical growth opportunities, compounding strategies, growth stocks, and dividend stocks.

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Favorite Investment Quote

"Risk comes from not knowing what you're doing." — Warren Buffett

Published July 14, 2025 9:45 pm EDT

The Bank of Canada has been slashing interest rates at a lightning speed, from 5% in April 2024 to 2.75% in April 2025. No more rate cuts are likely in the short term unless unemployment increases. Lower interest rates will slowly seep into the economy and reduce Guaranteed Investment Certificate (GIC) rates. The highest GIC rate you can get right now is 4% for a two-year tenure. When interest rates were rising, GIC was an attractive investment. However, it is time to switch to alternatives that can beat every GIC rate, and dividend stocks are a good option.

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The 8.97% monthly dividend that beats every GIC rate

A bank uses GIC to give loans to individuals and corporations with high credit scores. Timbercreek Financial (TSX: TF) uses the lending business model to give short-term mortgages to income-generating real estate investment trusts (REITs). The lender gives $0.69 in dividends per share per year from its distributable income.

This distributable income is the cash flow left after deducting the effect of amortization, accretion, unrealized fair-value adjustments, expected credit loss, and unrealized gain or loss from total net income and comprehensive income. Timbercreek paid 92.8% of the distributable income in the first quarter. While the payout ratio has increased, it is sustainable as lending activity increases.

Timbercreek Financial enjoyed high interest income in 2023 when interest rates were at 5%. However, such high borrowing costs slowed lending activity and pushed a few loans to Stage 3 recovery. Many REITs repaid loans and paused new developments until borrowing became affordable. The lender expected an uptick in new loans as interest rate cuts began in 2024, but it took a while as REITs waited for further rate cuts.

The income difference between GIC and an 8.9% yield

If you invest $10,000 in a two-year GIC offering 4% interest compounding quarterly, you will get $10,828.57 on maturity.

If you invest the same amount in Timbercreek Financial, you can buy 1,299 shares, which will pay a monthly dividend of $74.69. That converts to $896.31 per year and $1,792.62 over two years. Timbercreek Financial can pay you $964.05 more than GIC.

The lender also gives you a dividend-reinvestment plan (DRIP) in which it will automatically buy more units of Timbercreek and compound your returns.

The risk that comes with the high yield

However, this premium comes with a higher risk. Unlike GIC, where deposits up to $100,000 are insured by the Canada Deposit Insurance Corporation (CDIC), the $10,000 invested in Timbercreek Financial is subject to share price volatility.

Timbercreek Financial has been paying regular monthly dividends for the last nine years and is showing no signs of warning of any dividend cuts. In the worst-case scenario, Timbercreek Financial may see a larger number of loans going into Stage 3 and may slash dividends by 30 or 40% to $0.4414. That will reduce the dividend yield to 5.37%, still above the GIC interest rate. The bigger risk could be a 20% decline in share price.

If invested with caution, Timbercreek can be considered an alternative to a two-year GIC to earn higher income.

You could diversify investments across GIC, Timbercreek Financial, and other stocks according to your risk appetite. The end objective of portfolio diversification is to mitigate risk and enhance returns.