Broader stock markets have been calming down in recent sessions. This could change as the American tech titans pull the curtain on their own slate of earnings results. As the recession comes in at full speed, investors must ask themselves how they plan to navigate this tough market.
GICs (Guaranteed Investment Certificates) are looking very attractive here, with yields well above 4.1%. Similarly, various bond funds of mixed duration (think universe bond indices and corporate bonds) offer yields of nearly 3%. Personally, I’m a big fan of GICs here, provided you’re also investing some money into “risky” assets like stocks, REITs, equity ETFs, and royalty funds.
Why risk your money ahead of a recession when you can score a guaranteed 4% or so from a non-cashable (which implies some lock-in) GIC over the timespan of 12-18 months? Indeed, GICs do seem like a great deal. If you’ve been checking in on GIC rates for a few years, you’ll know that GICs are close to bountiful as they’ve been in a very long time. Many beginner investors may never have seen a GIC rate north of the 4% mark prior to the pandemic!
Stocks still make sense in a high-rate GIC world
Though there are zero guarantees in the world of stocks, I do think they’re worth pursuing, especially if you’re young, with time on your side. Yes, market corrections, pullbacks, and crashes happen. But if you’re decades away from retiring, you have enough time to pick yourself back up after getting knocked down by an unforgiving Mr. Market.
Retirees don’t have the same ability to get back up. That’s why GICs and less-volatile, defensive dividend-paying stocks may make more sense.
In any case, young investors may be leaving some wealth creation on the table by merely “settling” for 4% with a GIC. Remember, inflation is still running hot. The “real return” from a GIC will be close to zero or negative assuming inflation continues to creep lower from here.
As for stocks, there are cheap names with upside potential and a bountiful dividend that exceeds the 4% offered by GICs. Better yet, the dividends stand to grow over time, so long as each firm can keep powering their cash flows higher over the long run.
Enbridge and CNQ stocks: High yields, compelling long-term potential
I don’t want to sound anti-GIC. But young investors should ask themselves which asset classes are right for them and their time horizons. If you’re committed to 10 years or more, Enbridge (TSX:ENB) and Canadian Natural Resources (TSX:CNQ) are two names that could prove better bets.
Popular Canadian pipeline firm Enbridge sports a juicy 6.7% dividend yield at writing. It has been a choppy ride, but given the firm’s history of paying dividends through trying times, I’d argue Enbridge’s payout isn’t at risk, even as recession hits firms where it hurts: the top and bottom line.
Further, Enbridge looks quite cheap for the cash-flow-generative assets you’ll get exposure to. At 18.1 times forward price-to-earnings, ENB stock is a very compelling challenger to “safer” investments provided investors are willing to embrace severe volatility.
Canadian Natural Resources (or CNQ) is another compelling darling with a growing dividend. The 4.44% yield is bountiful, safe, and growthy. Though shares have surged more than 520% off their 2020 lows, I still think the stock’s a decent value at 8.6 times trailing price-to-earnings. Oil price fluctuations will make for a choppy ride, though. The 2.0 beta implies investors will need to endure a wild ride.
The better bet: ENB or CNQ?
I like Enbridge more. It has a higher yield and more upside as it moves on from recent negative headlines relating to regulatory hurdles.
