Financial Insights That Matter
Written by Brian Paradza, CFA at The Motley Fool Canada
Now that 2025 is here, many investors are evaluating their portfolios, assessing whether expected returns could meet personal investment objectives. Amid rapid technological advancements and lingering economic uncertainties, a pressing question emerges: do decades-old Canadian financial stocks still have a place in retirement portfolios?
While it’s natural to doubt bank stock returns as interest rates fall, the case for holding Canadian financial sector stocks, including the chartered banks, mortgage lenders, insurers, and the rising alternative lending stocks, remains as strong as ever. Here’s why these stocks continue to be a cornerstone for smart investors seeking both capital stability and wealth growth.
Canada’s financial sector is globally recognized for its stability and resilience. The country’s largest chartered banks have consistently demonstrated strength during economic downturns. Their resilience is underpinned by robust regulatory oversight from the Office of the Superintendent of Financial Institutions (OSFI) and the Bank of Canada.
Canadian banks emerged largely unscathed compared to their international counterparts during the global financial crisis of 2008. More recently, the financial sector weathered the COVID-19 pandemic, maintained healthy balance sheets, returned value to shareholders, and raised dividends as soon as a regulatory hold lifted. With the economy recovering and inflation checked, Canadian financial stocks should continue to benefit from an improving borrowing appetite and higher business volumes, even as interest margins shrink with falling interest rates.
A steady income is a priority for retirement portfolios. Canadian financial stocks are renowned for their generous and reliable dividend payouts and command significant weights in dividend-focused exchange-traded funds (ETFs). The dividend yields for Canadian banks typically range between 3.4% and 5.7% and generally outpace long-term government bond yields. The quarterly payouts are attractive and sustainable, thanks to the sector’s conservative lending practices and disciplined capital management.
Moreover, most Canadian financial services stocks have a long history of annual dividend growth. For instance, Royal Bank of Canada (TSX:RY), or RBC stock, has increased its dividend for 14 years, while Intact Financial raised payouts for 20 years. This consistent passive-income growth is a vital component of retirement planning, helping retirees combat inflation and preserve their purchasing power over the long term.
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