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Income-oriented investors must be feeling like kids in a candy store these days. There are great deals everywhere you look.
Whether you prefer stocks, ETFs, REITs, or preferreds, cash flows of 5% and up abound. We haven’t seen anything similar in decades.
The reason for this yield bonanza is clear – inflation, which has prompted the Bank of Canada and the Federal Reserve Board to increase interest rates at the fastest pace in 40 years. Combined with an inverted yield curve, the result has been across-the-board increases in investment cash flow.
Even short-term securities have cracked the 5% ceiling. Based on the current level of distributions, High Interest Savings Account (HISA) ETFs are currently yielding around 5%. They include the CI High Interest Saving ETF (TSX: CSAV), which currently has a forward yield of 5.1% based on my calculations. The Purpose High Interest Savings Fund (TSX: PSA) and the Horizons High Interest Savings ETF (TSX: CASH) both have a forward yield of 4.9%.
It's important to note that neither forward nor trailing yields are accurate predictors of what your money will earn over the next year in these funds. Trailing yield will skew the return to the downside because rates were much lower a year ago at this time. Forward yields assume the current rate of the monthly distribution will be maintained. That’s unlikely in this turbulent interest rate environment. So, be skeptical of yields in these funds and be prepared to move money quickly if they start to decline.
Unusually, HISA ETFs offer better yields at this time than traditional bond ETFs and mutual funds. But you can find bond fund returns in the 5% range in some fringe areas.
One example is the iShares U.S. High Yield Bond Index ETF (CDN Hedged) (TSX: XHY). The name tells the story. The fund invests in a wide-ranging portfolio of U.S. high-yield bonds. At a current monthly distribution of $0.078 ($0.936 annually), the forward yield is 5.85%. The ETF lost 11.5% in 2022 but is ahead 5.2% this year. It has $405 million in assets but should be viewed as high risk.
If you want something safer, try GICs. Several small companies offer one-year terms of over 5% according to ratehub.ca, with Motive Financial topping the list at 5.6%. There are even a few five-year GICs in this range, led by EQ Bank at 5.1%. But long-term yields are generally lower than short-term because of the inverted yield curve we’re currently experiencing.
Yields of 5% and up are easy to find in the equity markets. You don’t have to look far – most interest sensitive stocks are offering yields at levels we’ve rarely seen. The following examples are my calculation based on current dividends and the closing price on July 28.
In the pipeline sector, TC Energy Corp. (TSX: TRP) is paying 8.2% after the shares sold off last week in the aftermath of the sale of 40% of its interest in Columbia Gas Transmission and Columbia Gulf Transmission pipelines, and the announcement that the company will split into two publicly-traded entities next year. The yield on Enbridge Inc. (TSX: ENB) is currently 7.4%, while Pembina Pipeline Corp. (TSX: PPL) pays 6.5%.
Utilities are in a similar situation. Emera Inc. (TSX: EMA) pays 5.1%, Canadian Utilities Ltd. (TSX: CU) offers 5.4%, and Capital Power Corp. (TSX: CPX) is at 5.6%. Industry leader Fortis Inc. (TSX: FTS) is an outlier at 4%.
In the REIT sector, RioCan REIT (TSX: REI.UN) yields a healthy 5.4%. Choice Properties REIT (TSX: CHP.UN) is also at 5.4%, with Primaris REIT (TSX: PMZ.UN) at 6.2%, and Slate Grocery REIT (TSX: SGR.UN) offering 8.5%.
You can even find 5%+ yields among the major banks, which is rare. Check out Bank of Nova Scotia (TSX: BNS), which yields 6.4%. CIBC (TSX: CM) is also in this group at 6%.
I’ve just scratched the surface here. There are many other stocks with yields of 5% and up. If you want a portfolio with strong cash flow, they’re easy to find.
Perpetual preferred shares are another option. It’s easy to find yields of more than 6% with high credit ratings from companies like Fortis Inc. Cumulative Redeemable First Preference Shares Series F (TSX: FTS.PR.F), Great-West Lifeco Inc. 4.50% Non-Cumulative First Preferred Shares Series Y (TSX: GWO.PR.Y), and Intact Financial Corporation Non-Cumulative Class A Shares Series 5 (TSX: IFC.PR.E).
I don’t think we’ll see yields in this range a year from now. Take advantage of them while you can.
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. To take advantage of a 50% saving on a trial subscription and receive the special report “The Tumultuous Twenties,” go to https://bit.ly/bwGP20s.
Follow Gordon Pape on Twitter at https://twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
Content © 2023 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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