McMurtry Investment Report & Model Portfolios

Stock Picking Dilemma- Invest in a Canadian bank common stock or purchase a bank 5 year GIC

June 15, 2023

Many nervous investors are purchasing 5 year GICs instead of buying the common stock of banks. Their rationale is they think there is no risk in doing this.

Unfortunately there is a great deal of risk. Domestic bank stocks are relatively cheap currently after the recent US Regional Bank issue has negatively affected all bank shares. Yes it is likely that share prices will experience even more price volatility in a possible economic recession. However, domestic bank shares are likely to rebound once the recession has run its course and may be already discounting a shallow recession. Currently domestic bank shares offer dividend yields between 4-6% depending on the bank.

GICs do not provide any liquidity until maturity and more importantly do not offer any inflation hedge like stocks do. Five year GIC yields are 5% and above currently.


Personally I would rather own a Canadian bank common stock than purchase a 5 year GIC at this time. Dividend yields are comparable and are more tax efficient than GICs for taxable accounts. In addition dividends on bank stocks tend to rise over time, providing a hedge against inflation.

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