Bank vault

Searching for safety and cash flow in the financial sector

With the markets doing flip-flops every time Donald Trump opens his mouth, investors are asking what’s safe these days.

Finding low-risk places for your money used to be easy: Buy shares in Ma Bell (now BCE) and relax while the dividends rolled in. BCE upended that cart recently, slashing its dividend by more than half. It’s not alone. Some green energy companies have cut their payouts in recent years, including Algonquin Power. Several REITs reduced distributions during the pandemic, as did some oil and gas producers.

BCE’s cut was the most significant, however. The quarterly payout was slashed to $0.4375 ($1.75 a year) from $0.9975 ($3.99 a year), a drop of 56%. The shares yield 5.6% at the new level.

That’s still attractive to income-seeking investors but is the reduced level sustainable? For now, it appears to be. The company reported adjusted earnings per share of $3.04 in fiscal 2024. Free cash flow, which is the basis BCE uses to calculate payout ratio, was down 8.1% from the previous year, however it easily covers the new dividend rate.

However, investors don’t seem convinced. The stock is still trading at close to the bottom of its 52-week range, and there is concern about the financial impact of the company’s recent expansion into the U.S.

So, what’s safe these days, given the economic concerns swirling around Donald Trump’s devastating tariff policies and their impact on Canada?

Safe as banks

A former portfolio manager of a top-rated dividend fund suggests the best combination of cash flow and safety for income investors right now is to buy shares in the Big Six Canadian banks.

Dale Harrison of Vancouver, who is still an active investor, prefers the banks to BCE or utilities for several reasons.

“The Big Six banks currently generate an average 14% return on equity (ROE), with a dividend payout ratio of 51%,” he points out. “This means the internal growth rate for the banks is 6.86%, well in excess of the inflation/regulatory allowed earnings growth of pipelines and utilities. Most pipelines and utilities have lower ROEs and much higher payout ratios, resulting in low internal growth rates.”

Mr. Harrison also notes that five of the six largest banks have not reduced dividends since the Great Depression of the 1930s, even during times of severe earnings weakness such as the early 1990s recession and the 2008-09 financial crisis. National Bank is the sole exception.

Readers who prefer to invest in an ETF rather than individual stocks may consider the BMO S&P/TSX Equal Weight Bank Index ETF (TSX: ZEB) or the BMO Covered Call Canadian Banks ETF (TSX: ZWB). Both are recommendations of my Internet Wealth Builder newsletter, where they are updated regularly.

If you would like to add some insurance companies to the mix, consider the following ETF.

iShares Equal Weight Banc and Lifeco ETF (TSX: CEW). As the name suggests, this ETF invests in an equal weight portfolio of major Canadian banks and life insurance companies. The fund has generated strong gains both short- and long-term. For the 12 months to May 31, it posted a profit of almost 32%. The 10-year average annual compound rate of return to that point was 11.77%.

The ETF was launched in February 2006 and has $246 million in assets under management. The MER seems a little on the high side for a passively managed fund, at 0.61%. Distributions are made monthly, currently at the rate of $0.066 per unit ($0.792 per year). The forward yield is 3.6% at the current price.

All Big Six banks are included in the portfolio, at weightings of about 10% each. The insurers are Sun Life, Manulife, Great-West Life, and IA Financial.

No stock is immune from a broad market downturn, but banks and insurers appear to be well-positioned at this point and are not directly affected by tariffs – although their clients might be. Before investing, consult your financial advisor to ensure the fund aligns with your financial objectives and tolerance for risk.

Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.

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Notes and Disclaimer

Content © 2025 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.

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