The Globe and Mail - 13.11.2019

B10 O THEGLOBEANDMAIL| WEDNESDAY, NOVEMBER 13, 2019

GLOBEINVESTOR

| REPORTONBUSINESS

H

igh up on the list of lam-
est money mistakes is
keeping a high balance in
a chequing account.
Chequing accounts pay trace
levels of interest, at best. Better
to keep big balances in a high-
rate savings account, right?
Generally, yes. But if you’re a
personal finance keener who is
open to some contrarian think-
ing on holding cash, then park-
ing a big balance in a chequing
account makes surprisingly good
sense.
You don’t hear as much about
it these days, but banks used to
take a lot of flak over the various
account and service fees they
charge customers. One way to
deal with this criticism is to
waive or reduce fees for seniors,
students, youth and clients who
keep a sizable minimum balance
in their account.
Bank of Montreal, Bank of No-
va Scotia and Toronto-Dominion
Bank eliminate or rebate the
monthly fee on mainstream che-
quing accounts with unlimited
transactions if you maintain a
balance of $4,000. Canadian Im-
perial Bank of Commerce re-
quires a $3,000 balance (and
have a recurring direct deposit or
two preauthorized payments a
month) and National Bank of
Canada sets a minimum of
$4,500 to avoid a flat monthly
fee.
The big banks do the same
thing in their deluxe chequing
accounts, for which the bloated

monthly fees can reach $30 or

so. To get this cost waived, you

need to keep $5,000 or $6,000 in

the account.

Of course, there’s free chequ-

ing for everyone at online banks

such as Alterna Bank, motus-

bank, Simplii Financial and Tan-

gerine.

But most Canadians are mar-

ried to the big banks and won’t

try these worthy alternatives. If

that’s you, then consider keeping

a block of savings in a chequing

account to eliminate fees.

The most popular chequing

account these days is the unlim-

ited account, which typically lets

you make any number of debits

and e-transfers at a cost of $15 or

so a month.

The appeal of these accounts

is the certainty of knowing you

can bank your brains out and

not incur charges beyond the

monthly fee.

The downside is that $15 a

month is a not inconsiderable

amount to pay your bank every

month for services you can get

for free elsewhere.

Annually, paying $15 a month

adds up to $180 a year. On a

$4,000 balance – if those fees

were eliminated – that’s like a

4.5-per-cent benefit. On a deluxe

chequing account with fees of

$30 a month and $360 annually,

parking $6,000 in an account to

eliminate fees is a benefit of 6

per cent.

Good luck finding risk-free re-

turns of this size in the banking

or investing world.

Five-year guaranteed invest-

ment certificates pay 2.5 per cent

to 2.85 per cent these days at

best, while high interest savings

account rates top out around 2.3

per cent in most cases.

Consultant David McVay of

McVay and Associates said the

average chequing account bal-

ance is around $4,000 to $5,000.

“But that average is quite skewed

by people who have a lot more

than that,” he said. “A lot of ol-

der people like to have large bal-

ances just to be comfortable, and

lot of rich people have a large

balance because it doesn’t seem

large to them.”

Mr. McVay says the monthly

fee waiver for high chequing ac-

count balances is a way for banks

to retain these high-balance cli-

ents.

Banks like these customers a

lot because they often have oth-

er products with the bank, and

the piles of money sitting in

their accounts can be used to

profitably lend out.

The weak spot in the strategy

of keeping a block of cash in an

account to avoid fees starts with

the fact that you have to main-

tain the minimum balance for

the entire month to get your fee

waived.

If you fall below that level for

a microsecond, expect your bank

to notice and charge you the

monthly fee.

To avoid this risk, you might

be tempted to keep more than

$4,000 or whatever amount in

your chequing account. But as

your chequing account balance

rises, the benefit of avoiding

monthly account fees starts to

recede.

To get the best bang for the

megabucks you keep in a chequ-

ing account, take the amount of

the fees you’re saving and add it

to your savings each month or

year. Even if you don’t, you’ll

have $180 and up each year to

spend on yourself rather than

having it added to your bank’s

profits.

Aguaranteedreturnfromanunlikelysource

Got$4,000?Your

bank’sbasicchequing

accountmightgiveyou

thebestpayoutyou’re

likelytogetanywhere

ROB
CARRICK

OPINION

PERSONALFINANCE

ISTOCK

A

utoCanada Inc. hasn’t generat-
ed a profit for six consecutive
quarters but investors are sens-
ing that the Edmonton-based
car dealership’s worst days are behind
it: The shares have surged more than
40 per cent over the past month.
Is it worth jumping onto this rally?
The stock has been on a five-year los-
ing streak that has tested long-term in-
vestors. Part of the problem is that Au-
toCanada was focused on Western Can-
ada, where Alberta was home to 22 of
its 48 car dealerships and drove 49 per
cent of the company’s annual sales in
2014.
This focus didn’t work out too well
when the price of oil collapsed, Alber-
ta’s economy tanked and the demand
for new Infinitis, Volkswagens, Nissans
and Hyundais dried up.
Later, the company’s bid for geo-
graphic diversification misfired: It paid
$110-million to acquire Chicago-based
Grossinger Auto Group in March, 2018.
But AutoCanada then took a $44-mil-
lion writedown on the deal and exec-
utives confessed that Grossinger’s retail
outlets weren’t quite up to snuff.
Investors couldn’t count on AutoCa-
nada’s management team to lift the
company out of the mess that they had,
in part, created: Both the chief exec-
utive and chief financial officer re-
signed a little over a year ago. Mean-
while, the retail automotive sector was
struggling in 2018 amid rising borrow-
ing costs that were crimping car sales.
The stock, which hit a high of $90.45
in 2014, touched a low of $7.49 last
month.
Each nascent rally over the past cou-
ple of years has been followed by a low-
er low, no doubt demoralizing many in-
vestors.
The current rally, though, looks dif-
ferent – largely because the company is
different.
Previously, the company focused on
new car sales and would often auction
used cars at a loss.
Service bays at dealerships lan-
guished with occupancy rates of 50 per
cent or 60 per cent.
Now, AutoCanada is ramping up its

interest in used car sales, which in-

creased 18.1 per cent in the third quar-

ter.

As a result, the ratio of used to new

car sales increased to 72 per cent from

67 per cent previously.

It’s also doing more repairs on the

new cars it sells.

The benefits: Service

bays are busier and re-

pairs offer a more predict-

able revenue stream.

“It’s not a really com-

plicated business. It’s

been a business that was

focused for far too long

on just selling new cars

instead of all the profit

centres within the busi-

ness,” Paul Antony, Auto-

Canada’s relatively new

executive chairman (he

stepped into the role 16

months ago), said in an

interview.

AutoCanada’s third

quarter results, released

last week, suggested that

the company is making

progress.

Revenue in the quarter

increased to $981.9-mil-

lion, up 13.3 per cent over

the third quarter of 2018.

Same store sales, or revenue generated

by dealerships open for at least a year,

increased 9.1 per cent.

Although the company generated a

loss of $4.1-million or 15 cents a share,

you could see the makings of a turn-

around here: EBITDA (earnings before

interest, taxes, depreciation and amor-

tization) was $21.8-million, up 34.9 per

cent year-over-year – after making ad-

justments for accounting changes and

costs associated with shut-

ting down two U.S.-based

franchises.

“While results were in-

line, we believe the posi-

tive progression being

shown quarter-over-quar-

ter is resonating positively

with investors,” Chris Mur-

ray, an analyst at AltaCorp

Capital, said in a note.

“[W]e believe senti-

ment has reached an in-

flection point and expect

further price appreciation

as valuations normalize

and short-sellers exit their

positions,” Mr. Murray

added.

Mr. Murray now expects

that the shares could trade

as high as $20 within a

year, which is up from his

previous price target of

$17.

That makes him the

most bullish analyst cover-

ing the stock. But with the share price

on the rise, you have got to wonder if

opinions on AutoCanada are set to

change.

AutoCanadastockmaybewortharide

aftercompany’slatestrally

DAVID
BERMAN

OPINION

INSIDETHEMARKET

Investorscouldn’t

counton

AutoCanada’s

managementteam

toliftthecompany

outofthemessthat

theyhad,inpart,

created:Boththe

chiefexecutiveand

chieffinancialofficer

resignedalittleover

ayearago.

Meanwhile,theretail

automotivesector

wasstrugglingin

2018amidrising

borrowingcoststhat

were crimping car

sales.

I

’m coining the phrase “yield nostal-

gia” for my fellow investors who

have been around long enough to re-

member when it was possible to get

a substantial return from bonds and

guaranteed investment certificates.

Let’s use 5 per cent as a threshold. I

remember stuffing a five-year GIC with a

5-per-cent yield into our sons’ registered

education savings plan back in the

mid-2000s. Today, half that yield would

be typical if you’re GIC shopping. But if

you’re open to 5-per-cent yields from

blue-chip stocks rather than GICs or

bonds, you do have a few possibilities.

First off, we should make it clear that

dividend stocks in no way substitute for

bonds in a diversified portfolio. But if

you’re an income-focused investor and

have some leeway in your asset alloca-

tion, these 5-per-centers may be of inter-

est because they’re blue-chip companies

with a history of dividend growth. Here’s

the group.

Enbridge Inc.(ENB): The yield was

just under 6 per cent as of Nov. 11 and

five-year annualized dividend growth

was 16.3 per cent. A high yield such as

this suggests investor skepticism that

this pace of growth can be maintained.

Pembina Pipeline Corp.(PPL): A

yield of 5.1 per cent and five-year divi-

dend growth of 6.4 per cent.

Power Corp. of Canada(POW): A 5.1-

per-cent yield and five-year dividend

growth of 5.3 per cent.

BCE Inc.(BCE): A 5-per-cent yield

and dividend growth of 5.3 per cent.

Canadian Imperial Bank of Com-

merce(CM): A 5-per-cent yield and divi-

dend growth of just under 7 per cent.

To put these numbers in perspective,

the yield on five-year Government of

Canada bondswaveredbetween 1.5 per

cent and 1.6 per cent in the early part of

November. The 5-per-cent yields on

these five blue-chip stocks suggest

they’re out of favour with investors, yet

each of them except CIBC had a positive

return for the 12 months to Nov. 11. CIBC

was down just 0.6 per cent.

It’s hard to see bond and GIC yields

getting even close to 5 per cent these

days. Meantime, a few blue-chip stocks

may help you get over your yield nostal-

gia.

Nostalgicforbonds

with5%yields?

Considera

blue-chiptack

ROB CARRICK