A 4.25% guaranteed return sounds pretty good when markets are bouncing around and investors are rediscovering just how quickly a “safe” portfolio can turn red.
That’s roughly what some five-year guaranteed investment certificates (GIC) are offering today. Deposit $10,000, leave it alone, and the return is beautifully boring. There are no earnings calls to follow, no ugly trading days and very little temptation to panic.
Yet guaranteed doesn’t mean unbeatable. For money needed within a few years, a GIC can be exactly the right tool. For money meant to sit untouched for a decade, investors should look beyond the interest rate and consider what they’re giving up.
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The missing half of the comparison
A GIC provides a fixed return for a fixed period. A dividend stock starts with a yield, but that yield is only one part of the potential return. A company can increase its dividend, grow earnings, repurchase shares, and eventually command a higher share price. That’s why comparing a 4.25% GIC with a 2% dividend stock purely by yield is a bit like choosing a car based only on the size of the cup holder.
The lower-yielding investment can still produce the larger ending balance. Of course, stocks can fall and dividends aren’t guaranteed. That makes time important. Investors who need the money soon shouldn’t gamble that the market will cooperate. Those with a decade or longer can give compound growth much more room to work. And there’s one Canadian dividend stock where that difference becomes especially interesting.
Rails over rates
Canadian National Railway (TSX: CNR) operates nearly 20,000 miles of rail connecting Canada’s Atlantic and Pacific coasts with the U.S. Midwest and Gulf Coast. It moves everything from grain and crude oil to vehicles and consumer products.
That enormous network gives CN pricing power and creates a formidable barrier to entry. More importantly, the business continues producing cash that can be reinvested, paid as dividends or used to reduce the share count.
Second-quarter revenue climbed 11% year over year to $4.8 billion, while adjusted earnings per share increased 11% to $2.08. Revenue ton miles, essentially the amount of paying freight carried multiplied by distance, also increased 5%. That performance led management to raise its 2026 outlook to mid-to-high single-digit adjusted earnings-per-share (EPS) growth.
A small yield with a long history
CN currently pays $0.92 per share quarterly, or $3.66 annually. At a recent share price of about $166.73, that’s a yield of roughly 2.2%. A GIC wins that contest easily.
Yet CN has now increased its dividend for 30 consecutive years. It has also authorized the repurchase of up to 24 million shares through its current buyback program, while first-half free cash flow jumped 19% to $1.84 billion.
That combination gives shareholders several ways to benefit beyond today’s dividend. CN shares traded around $65.94 a decade ago. From there to roughly $166.73 today represents annualized share-price growth of about 9.7%, before counting dividends. Here’s what $10,000 could look like if those rates continued:
| INVESTMENT | ASSUMED ANNUAL RETURN | 10-YEAR VALUE |
|---|---|---|
| GIC | 4.25% | $15,162 |
| CNR historical share-price CAGR | 9.7% | $25,285 |
The GIC calculation assumes an investor could keep earning 4.25% for the entire decade, which isn’t guaranteed once the first term expires. The CN figure is even less certain. Past growth certainly doesn’t promise another identical decade, but does show why a lower dividend yield shouldn’t automatically send investors running back to the GIC counter.
Bottom line
CN trades around 21 times trailing earnings and sits only about 10% below its 52-week high. So this isn’t a beaten-down railway waiting at the lost-and-found. What’s more, a recession could reduce freight volumes and tariffs could disrupt trade, while labour disputes, weather and derailments can also make railway earnings rather less predictable than GIC interest.
That’s the price investors accept for greater potential upside when buying Canadian dividend stocks. A 4.25% GIC can be a very sensible place for short-term savings. I just wouldn’t mistake its higher starting yield for a guaranteed long-term victory.
CN’s roughly 2.2% dividend looks modest beside it. Add three decades of dividend increases, earnings growth, buybacks and an irreplaceable rail network, however, and the next 10 years could look considerably more rewarding than the rate printed on today’s GIC certificate.
