High-yield equity investment alternative

In today’s low interest rate environment, traditional fixed income investors may be inclined to seek alternative instruments providing higher returns. An excellent alternative that should be given serious consideration are high-yield equities. We define this group as Canadian bluechip common stocks that offer investors both tax-efficient cash dividends, and excellent potential for long-term capital appreciation. Realizing capital gains may, over time, provide investors with some of their income needs, while still maintaining initial portfolio values.


High-yield equities include the common stocks of banks, utilities, and pipeline companies. These are large, well-capitalized corporations with a history of regular annual dividend payments. In some cases, dividend payouts have been increased on a year-over-year basis, reflecting long-term earnings growth and financial stability.


Individual and corporate investors also benefit from the more-favourable tax treatment given to Canadian dividends over interest income. This allows investors to retain more of their income after tax.


An additional benefit of high-yield equities is that they are generally considered a e haven in times of market turbulence. The regular dividend payments provide a solid valuation base, which serves as a shock absorber in volatile conditions. For those investors who currently view the equity markets with some uncertainty, in light of the new highs reached by both the Canadian and U.S. stock indices, owning high-yield blue chip common stocks will provide an element of comfort not available from more volatile momentum stocks.


For more information on high-yield equity investment alternatives and a copy of Merrill Lynch Canada High-Yield Portfolio report containing our top recommendations, contact your Merrill Lynch Financial Advisor.


The information contained herein was obtained from sources believed to be reliable, however, the accuracy is not guaranteed.


Financial Tips courtesy of Merrill Lynch Canada Inc.