There are times when the stars line up for retirement investors trying to squeeze as much income from their portfolios as possible.
This might be one of those times, as yields on guaranteed investment certificates (GICS) surpass the dividend yields from some of the big Canadian banks that issue them.
Most Canadians who invest for retirement hold big Canadian bank stocks directly, in mutual or exchange traded Canadian equity funds, or in company pension plans. Even the Canada Pension Plan (CPP) owns stock in big Canadian banks.
The big banks; Toronto Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Royal Bank of Canada, Canadian Imperial Bank of Commerce and National Bank of Canada have never missed or even lowered dividend payouts since Confederation.
Annual dividend yields on their common stock range from 2.8 per cent to 4.3 per cent.
In comparison, one-year GICs are currently paying out between 3.8 and 4 per cent.
It’s important to know that GICs and bank shares are very different investment vehicles; as different as stocks and bonds. But when you’re retired - or near retirement - and need a steady and reliable income stream, income is income.
While individual dividend payouts might seem like a trickle, income from several income-generating investments adds up over time as it compounds. That makes both bank stocks and GICs ideal for a retirement portfolio.
Here are basic differences to consider when deciding how much of each you would want in your retirement portfolio.
GICs: steady cash, no risk
As the name implies, the principal and yields on GICs are guaranteed. Private borrowers issue them but they are ultimately backed up by the Federal government. If Ottawa defaults we’re all in big trouble.
Before 2022 GIC yields languished at about one per cent for much of the previous three decades in step the Bank of Canada benchmark interest rate.
To dampen inflation as the world emerged from the pandemic the trend-setting rate was increased in 2022, and later moderated to where it is now at 2.25 per cent.
Forecasts for 2026 generally predict the rate to hold steady into 2027 depending on inflation.
More risk and reward potential from banks
Inflation is a risk with all income investments but bank stocks carry additional risk and the potential for bigger rewards because they trade on stock markets in Canada and the United States.
Unlike GICs, dividend payouts on stocks are at the discretion of the company. Scotiabank is currently the top annualized payer at 4.3 per cent and RBC brings up the rear at 2.8 per cent.
Dividends are derived from earnings. Historically, Canadian bank profits have grown over time regardless of short-term market shocks and even major events such as the 2008 global financial meltdown or the pandemic.
The growth in share prices for the big six banks has grown with earnings. Thanks in part to an exceptional 2025 on the markets the value of RBC, CIBC, National Bank and BMO have more than doubled over the past 5 years.
There’s no guarantee bank stocks will continue to rise but metrics suggest their earnings future looks bright. Equity researchers find investment opportunities through discrepancies between stock prices and earnings that suggest a stock price could be trading below or above its true value relative to earnings.
A basic and common method is the trailing price-to-earnings (P/E) ratio calculated by dividing the current share price by earnings per share.
P/E multiples currently range from 11.3 times for TD Bank and 18 times for Scotiabank, which is in line with historic averages.
