Canadians have another $7,000 in Tax-Free Savings Account (TFSA) contribution room in 2026. With the TSX near its record high and economic headwinds potentially on the way, investors are wondering if dividend stocks or Guaranteed Investment Certificates (GICs) are good to buy right now.
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Market outlook
Stocks have been on a roll for more than two years, including a big rebound after the 2025 tariff shock.
The upward trend actually started in late 2023, around the time the Bank of Canada and the U.S. Federal Reserve indicated they were done raising interest rates in their battle to get inflation under control. This created a shift in the markets from expectations of higher rates to anticipation of rate cuts. Those reductions eventually materialized in 2024 and 2025.
Analysts widely predicted additional rate cuts heading into 2026, but the surge in oil prices will start to put upward pressure on inflation in the coming months. This will likely force the central banks to keep rates at their current levels. In the event that inflation surges, there is a risk that rates would have to be moved higher. In that scenario, stocks would face some headwinds. Indications of an economic downturn would also be negative for stocks, as expectations for earnings would be lowered.
Given the extent of the rally over the past 30 months and the potential economic headwinds, it might make sense for investors to take a defensive approach right now when putting new TFSA money to work.
GICs or dividend stocks?
GIC rates in late 2023 briefly went as high as 6%. Today, GIC rates are much lower.
Falling interest rates and declining bond yields in 2024 and 2025 led to a reduction in the rates offered by GIC issuers. In recent weeks, however, GIC rates rebounded amid a spike in government bond yields. At the time of writing, investors can get non-cashable GICs paying above 3% depending on the issuer and the term. Canada’s March inflation rate came in at 2.4%, so the GICs are still paying enough to cover inflation.
GIC investments are 100% safe as long as the GIC issuer is a Canada Deposit Insurance Corporation (CDIC) member and the amount is within the $100,000 limit.
The downside of a non-cashable GIC is that the invested funds are locked up for the term of the certificate, as is the interest rate.
Dividend stocks can provide attractive yields and potential capital appreciation, but they also carry risk. Share prices can fall below the purchase price, and dividends sometimes get cut if a company runs into financial difficulties. That being said, dividend yields are often higher than rates offered on GICs, and the return on the initial investment rises with each dividend increase. In addition, stocks can be sold at any time to access the funds.
In the current market conditions, investors might want to consider companies that have long track records of dividend growth.
Enbridge (TSX:ENB), for example, has increased its dividend in each of the past 31 years.
The company continues to grow through a combination of acquisitions and development projects that should drive steady increases in adjusted earnings and distributable cash flow in the next few years. This should support ongoing dividend hikes. Investors who buy ENB stock at the current price can get a dividend yield of 5.4%.
The bottom line
A diversified portfolio of GICs and dividend stocks would be one way to generate a decent yield while reducing portfolio risk. The right mix of GICs and dividend stocks for a TFSA depends on a person’s risk tolerance, their required rate of return, and their need for quick access to the funds.
