Yield-hungry investors will keep flocking to Canadian dividend stocks through the end of 2025, according to CIBC Capital Markets.
Shares of Canadian banks, insurers and pipeline companies are expected to benefit the most from a slower-than-expected “yield trade” away from GICs (guaranteed investment certificates).
GICs, typically issued by banks, insurance firms and trust companies, offer a guaranteed return over a fixed timeframe. They surged in popularity when the Bank of Canada (BoC) began raising its trend-setting policy rate in March 2022 from COVID-19-era lows. Now, the tables have turned, with the BoC policy rate 225 basis points lower since last summer, following seven cuts from the central bank.
The Bank of Canada is scheduled to announce its next rate decision on July 30.
CIBC’s Ian de Verteuil predicts a “powerful fund flow” from GICs will continue to migrate to high dividend-yielding Canadian stocks.
“We are still early in the trade, and with further unwinding in GICs expected through the remainder of 2025, there is still a powerful fund flow support for high dividend-yielding Canadian equities,” he wrote in a note to clients earlier this week.
So far in 2025, de Verteuil says performance has been brisk for most of the typical TSX dividend darling sectors, with utilities and REITs (real estate investment trusts) playing catch-up.
“Banks, insurers and pipelines have outperformed even the excellent returns of the S&P/TSX Composite – which has itself been bolstered by a rally in gold prices,” he wrote.
“Certainly, banks, insurers and pipelines will continue to benefit, but we would expect the ‘yield trade’ to broaden out further to include Utilities, REITs and Communications, which have not done as well.”
de Verteuil says the exodus from GICs has been slower than expected, despite $100 billion in GICs repricing every quarter.
“There may be some surprise as to why GIC balances have not declined at an even faster pace. Part of this is simply the duration of the book and penalties for early cancellation of most GIC deposits,” he wrote.
“Another potential reason for the slow movement out of GICs is the equity market volatility earlier in the year, which may have encouraged investors to renew their low-risk GICs rather than switch to more volatile equities.”
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on X @jefflagerquist.
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Canadian dividend stocks, GICs, Canadian banks, Canadian equities
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