Sign in Subscribe
Dividends

Dividend Stocks Make a Comeback as Interest Rates Fall and Savings Rates Decline

Strategic Insights

— 1 min read

As Canada's inflation rate normalizes and interest rates decrease, dividend-paying stocks are making a comeback, attracting investors seeking reliable income streams.

Key Takeaways:

  • The Dow Jones Canada Select Dividend Index has gained 15 per cent since the end of June, reversing a two-and-a-half-year stagnation.
  • Canadians have amassed a "savings glut" estimated to be as high as $500-billion, with a portion considered "excess savings" that could rotate into dividend stocks.
  • In August, investors pulled about $420-million from money market mutual funds, according to the Investment Funds Institute of Canada (IFIC).
  • Between 1977 and 2023, an investment in high-yielding Canadian equities would have grown at more than four times the pace of the same amount of money parked in the broader Canadian stock market.
  • High-yield stocks have started to make up some of their lost ground, and great fortunes that found refuge in savings accounts and GICs are beginning to rotate back into dividend stocks.
  • The unwinding of the pandemic-era yield trade is starting to take shape, with fund flows at a turning point and rates and yields coming down.
  • The yield on Government of Canada five-year bonds has dropped from a high of 4.4 per cent to 2.7 per cent, and one-year GIC rates are now at 4.75 per cent or less.
  • Canadian dividend yields are attractive these days, more so as interest rates elsewhere continue to fall.

Statistics:

  • Since the end of 2021, Canadian money market mutual funds and ETFs have seen their assets swell by nearly $50-billion, or 2.5 times, according to IFIC data.
  • The excess savings in Canada that naturally belongs in dividend stocks is estimated to be at $200-billion, according to CIBC World Markets' head of portfolio strategy, Ian de Verteuil.
  • The Dow Jones Canada Select Dividend Index has gained 15 per cent since the end of June.
  • The yield on Government of Canada five-year bonds has dropped from a high of 4.4 per cent to 2.7 per cent.
  • One-year GIC rates are now at 4.75 per cent or less at alternative banks, down from a peak of 6 per cent.

Sources:

  • Globe and Mail
  • Investment Funds Institute of Canada (IFIC)
  • CIBC World Markets
  • Purpose Investments
  • Norman Rothery, founder of Rothery Capital

Read more