Canadian bank stocks have become so popular that the financial sector now occupies roughly 37% of the TSX. That’s wonderful when banks are climbing and rather less charming when one disappointing quarter makes a large piece of the index wobble at once. One bank may still deserve a place in a portfolio, although it no longer deserves the automatic placement.
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A dividend is more than its yield
Dividend yield divides the annual payment by the share price. A higher yield creates more income today, but it doesn’t reveal whether earnings can support tomorrow’s payment. Investors should also examine payout coverage, earnings growth, and the company’s room to raise the dividend without sending the finance department into hiding.
Payment frequency matters less than durability. Quarterly cash can be divided into three monthly transfers, while investors who don’t need the income can reinvest it. Reinvesting payments from Canadian dividend stocks buys additional shares, allowing future distributions to grow even before management approves another increase.
TD isn’t broken
Toronto-Dominion Bank (TSX: TD) remains a powerful business. Second-quarter adjusted earnings per share (EPS) rose 21% year over year, while its 14.3% Common Equity Tier 1 ratio provided a thick capital cushion. Management also raised the quarterly dividend to $1.12. The problem is that investors noticed every bit of this good news.
TD stock closed only 3.7% below its 52-week high at writing, and traded near 20 times trailing earnings. Its U.S. asset cap and continuing anti-money-laundering remediation also limit how freely the American business can grow. A strong bank can remain a mediocre purchase when the price has already put on its party hat.
Look beyond the banks
Great-West Lifeco (TSX: GWO) offers financial-sector exposure without depending on the same lending cycle. The company provides insurance, retirement plans, wealth management, asset management, and reinsurance across Canada, the United States, and Europe. More workers saving for retirement can increase client assets and the fees Great-West earns from administering them.
That engine is already accelerating. Second-quarter base earnings per share climbed 15% to $1.42, while base return on equity reached 19.3%. Great-West’s Empower subsidiary also agreed to buy Milliman’s retirement-plan administration business, adding approximately US$130 billion in client assets and 1.5 million participants after closing.
The dividend strengthens the case. Great-West raised its quarterly payment 10% to $0.67 in February, producing a $2.68 annual payout. At writing, the stock yields approximately 2.9%, slightly ahead of TD stock’s 2.7% yield.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | ANNUAL DIVIDEND | ANNUAL TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| GWO | $91.55 | 109 | $2.68 | $292.12 | Quarterly | $9,978.95 |
| TD | $168.83 | 59 | $4.48 | $264.32 | Quarterly | $9,960.97 |
Should you forget TD?
Great-West has rallied even faster than TD stock and now sits less than 3% below its 52-week high. Falling markets can reduce fee income, unfavourable insurance claims can pressure earnings, and integrating another retirement business adds execution risk. Neither dividend is guaranteed, regardless of how respectable the quarterly cheque looks.
So don’t forget TD stock entirely. TD stock still offers a formidable Canadian franchise and improving earnings, but the shares leave little room for disappointment. Great-West currently provides a slightly larger yield, faster recent dividend growth, and direct exposure to expanding retirement assets.
I’d buy Great-West gradually among diversified Canadian blue-chip stocks instead of chasing either company near a record high. If Empower keeps gathering assets and Great-West converts that growth into rising earnings, today’s modest income could become a considerably larger retirement paycheque long after TD stock’s current rally leaves the headlines.
