Five years sounds long enough to take a chance on stocks. It also sounds short when you remember how stubbornly a market downturn can outlast everyone’s predictions.
If I needed exactly $10,000 for a known expense in September 2031, I’d choose a five-year guaranteed investment certificate (GIC). If the date were flexible and I could leave the money invested longer, I’d consider a dividend stock such as Hydro One (TSX: H). The difference isn’t whether I like dividends. It’s whether I can afford to wait for the share price to recover if the timing goes wrong.
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What the GIC will pay
A non-redeemable five-year GIC currently sits around 4.3%, available in a TFSA or a non-registered account. Assuming annual compounding, $10,000 would become approximately $12,343 at maturity. That’s about $2,343 earned without the mess of the stock market.
An eligible GIC issued by a Canada Deposit Insurance Corporation member (CDIC) can also qualify for deposit insurance, subject to coverage limits and categories. A stock cannot.
That certainty is valuable if the money has a job waiting for it. A home renovation, tuition payment, or planned retirement withdrawal doesn’t become cheaper because stocks happen to be down when the bill arrives.
Here to compare
That said, Hydro One offers a different proposition. The company operates Ontario’s electricity transmission and distribution infrastructure, investing in the lines and equipment needed to keep up with demand. Its latest quarter produced earnings of $0.62 per share, up from $0.54 a year earlier. It also placed $644 million of new assets into service. Those are encouraging results, although financing and operating costs rose too.
At writing, $10,000 would buy 196 whole shares for $9,990.12, leaving $9.88 in cash. Hydro One’s latest declared quarterly dividend was $0.35 per share. If that payment stayed unchanged, the shares would produce about $276.83 annually, a yield near 2.8% on the purchase price. Dividends are declared by the board, so five years of payments are not guaranteed.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | ANNUAL DIVIDEND | ANNUAL TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| H | $50.97 | 196 | $1.41 | $276.83 | Quarterly | $9,990.12 |
The dividend alone falls well short of the GIC’s 4.3% rate. To come out ahead, Hydro One investors would need share-price gains, dividend increases, or both.
Getting interesting
Suppose Hydro One’s dividend remained unchanged for five years, the investor collected every payment in cash, and there were no taxes or trading costs. The 196 shares would generate approximately $1,384 in dividends. To match the GIC’s $12,343 ending value, the shares would then need to sell for roughly $55.86 each.
That’s about 9.6% above recent prices over the entire five years. It’s possible, especially if Hydro One keeps growing earnings and dividends. It is still a forecast the investor must get right, while the GIC’s return is set at purchase.
Hydro One faces real risks despite operating an essential service. Its expansion requires substantial capital, higher debt costs can weigh on earnings, and regulators influence the rates it can charge. Its shares could be worth less in five years even if every electricity bill arrived on time.
Where I’d put the money
For a firm five-year deadline, I’d put the $10,000 in the GIC. Its current rate beats Hydro One’s starting yield, and I would know the maturity value in advance.
For money I hope to use in five years but could leave invested for 10, Hydro One becomes more appealing. I’d buy it as one holding in a diversified Canadian dividend portfolio, with the chance to benefit from rising payments and share-price growth. Holding it inside a TFSA could shelter those returns if contribution room is available.
The GIC wins the certainty contest. Hydro One offers a chance to win the growth contest. Before choosing, I’d decide which contest the $10,000 actually needs to enter.
