GICs (Guaranteed Investment Certificates) are an incredibly popular investment among risk-averse investors who don’t want to risk a penny of their principal. Of course, no risk tends to mean very limited rewards in the world of investment. And while there are a slew of low-risk/higher-reward investments that can allow investors to do far better, especially given the current state of rates, GICs are usually a more compelling go-to for the “guarantee” that they provide.
Whether you’re an investor who can’t stand to take any form of risk or a new investor who has some fairly sizeable expenditures coming in the next year or so (let’s say tuition, moving costs, marriage, mortgage, or something else), GICs can make more sense than stocks and bonds.
But, for the most part, I think long-term investors who don’t plan to spend the funds anytime in the next five years or longer ought to strongly consider moving beyond GICs, especially given stubborn inflation and how much higher rates could go from here if the Bank of Canada were to take a hint from the U.S. Federal Reserve.
While GICs are fantastic for those who need cash in a year or two, I think undervalued monthly dividend payers can produce far better total returns over time. Indeed, a GIC yielding nearly 4% isn’t bad, but, at the end of the day, the real return (that’s after inflation) isn’t all that great.
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GICs make most sense for those who need a short-term place to park cash
Perhaps locking up your cash for a year or more isn’t quite worth the 1%, maybe 2% real return. For young long-term investors with extra cash that won’t be spent, I still view equities as a better bet. And for those seeking to keep their powder dry, there are far better low-risk investments out there that will allow you to access your cash when you actually need it (perhaps to buy stocks after a market crash or correction).
For those looking to lock in GIC rates for the next four or five years, though, I think there’s far better mileage to be had in the equity markets.
In any case, this piece will look at a passive income play that pays more frequently than GICs (which tend to pay at maturity unless, of course, you’re willing to settle for a lower rate for a more frequent interest payout). When it comes to monthly payers, my favourite dividend stock isn’t actually a stock at all; it’s a REIT (Real Estate Investment Trust).
While the Bank of Canada hasn’t kicked off the next rate-hike cycle just yet, I do think the REIT market is already bracing for impact. And that’s why a name like CT REIT (TSX: CRT.UN) stands out. It’s a monthly payer with a 5.8% distribution yield. Shares have officially corrected off those summertime 52-week highs, a move which I view as overblown considering the incredibly high occupancy rate from one of the most liquid and resilient retail powerhouses out there.
Bottom line
I’ll admit that the near-6% yield is what’s most attractive about the REIT. At the same time, though, I’m a fan of the development pipeline and, of course, its top tenant, Canadian Tire.
Call the Canadian Tire exposure a single source of failure (high concentration risk), if you will, but, in my view, riding on the coattails of one of the most iconic retailers in the country while getting paid well to do so is a pretty good proposition, especially now that rate expectations are higher than they were several months ago. I’ve said it before, and I’ll say it again: CT REIT’s concentration in Canadian Tire is a good thing and a worthy source of a premium.
With Canadian Tire, a more than 100-year-old retailer, you’re getting greater predictability and well-established stability (just look at the retailer’s robust balance sheet). Add a decent development pipeline into the equation, and CRT.UN might be an income play that outpaces GICs by a landslide.
