If you want hefty yields and relative steadiness as the broad markets feel some rumblings from the recent volatility concentrated in the tech sector (it seems like AI and semiconductors have been in the blast zone in recent sessions), the Canadian bank and REIT (Real Estate Investment Trust) scene is more than worth looking into, even amid recent newfound momentum. While there’s no telling when the tides will turn, I do think if you’re a passive investor, especially if you’ve got more than your fair share in an S&P 500 Index fund or ETF, you’ve probably already got a lot of tech.
Arguably, too much tech, given how much of the sector makes up the S&P 500. Either way, I think diversifying into higher-yielding banks and REITs could be the move as tech starts to reverse course. Even if you’re not a buyer of an AI bubble brewing, I still think that diversifying into steady dividend payers is a smart move to balance out that barbell portfolio. In my humble opinion, an S&P 500-heavy portfolio could use a bit of diversification with the likes of Canada’s top financials and REITs.
Indeed, rates could go higher, only to reverse course in a hurry based on macro events that aren’t yet on our radars. Given all the uncertainty involved, perhaps it’s best to think about the next five years, not just the next five weeks or months. Where will rates be in five years? It’s less clear, but my guess is that it might be around 2.25% or even slightly lower if AI delivers on the productivity promises, driving down prices in a broad range of goods.
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CIBC
For now, I think CIBC (TSX:CM) is a standout bank stock while it’s trading at just north of 15 times trailing price-to-earnings (P/E). Though shares have been quite heated in the past year, up around 64% in the timespan, the price of admission is still on the low side compared to its peers.
Of course, shares of CIBC might be historically expensive (remember the days when the P/E was in the single-digits?), but when it comes to the domestic mortgage-heavy bank, I do think there’s a lot of relative value to be had, especially as the bank looks to unlock its own tech-driven productivity gains.
CIBC might not be a frontier AI innovator, but there are efficiencies to unlock, and as the mortgage market holds its own, I think the relative discount on the name might be nothing more than an opportunity to buy. The 2.8% dividend yield is decent, but, of course, a fraction of what it used to be.
BMO Equal Weight REITs Index ETF
With worries about higher interest rates to combat inflation, perhaps the rate-sensitive REITs could face more considerable pressure as we head into the second half of 2026 and into 2027. Regardless, though, I must say that I’m a big fan of the risk/reward and think the valuations are low enough with yields that are high enough to justify buying, regardless of where the rest of Bay Street thinks the Bank of Canada (BoC) is going next with rates.
The BMO Equal Weight REITs Index ETF (TSX:ZRE) is a great pick with a 4.4% yield, especially after the latest breakout to 52-week highs. With a lower beta, 0.87, the high-income basket of REITs, I think, could side-step a correction focused on tech.
