The top Canadian companies to invest in are mainly blue chip stocks with a proven history of success. Learn what to look for in these stocks now

Top Canadian companies to invest in are mostly blue-chip stocks that pay steady dividends and meet our Successful Investor criteria. First, let’s take a look at what makes a blue-chip stock.

The best blue chips offer both capital gains growth potential and regular dividend income. The dividend yield is certainly one of the most concrete indicators of a sound investment. It is the percentage you get when you divide the current yearly dividend payment by the share or unit price of the investment. It’s an indicator we pay especially close attention to when we select stocks to recommend in our investment newsletters.

True Blue Chips pay off Learn everything you need to know in 'The Best Blue Chips for Canadian Investors' for FREE from The Successful Investor. Canadian Blue Chip Stocks: Bank of Nova Scotia Stock, CP Rail Stock, CAE Inc. Stock and more.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

The top Canadian companies to invest in are primarily blue chip stocks

You can still look at blue chips as the strongest and most secure stocks on the market.

When assessing blue chip companies that are good companies to invest in, you need to ask: What are they doing to remain vital? These companies hold strong positions in healthy industries. They also have strong management that will make the right moves to remain competitive in a changing marketplace.

Stocks like these give investors an additional measure of safety in today’s volatile markets. And the best ones–the good companies to invest in–offer an attractive combination of low p/e’s (the ratio of a stock’s price to its per-share earnings), steady or rising dividend yields (annual dividend divided by the share price) and promising growth prospects.

Good blue chips have low debt: It doesn’t matter if you’re investing in blue chip stocks or penny stocks, the company under consideration should have manageable debt. When bad times hit, debt-heavy companies often go broke first.

Blue chip investments should have industry prominence if not dominance: Major companies can influence legislation, industry trends and other business factors to suit themselves.

Good blue chip investments have the freedom to serve (all) shareholders: High-quality stock picks must be free of excess regulation, free of dependence on a single customer, and free from self-dealing insiders or parent companies. 

Canadian banks are some of the top Canadian companies to invest in

Canadian bank stocks have long been one of our top choices for growth and income, and we recommend that most Canadian investors should own one or more of the Big Five Canadian bank stocks—Bank of Nova Scotia, Bank of Montreal, CIBC, TD Bank and Royal Bank. That’s in large part because of their importance to Canada’s economy.

Canadian banks give conservative Canadian investors a near-ideal combination of pluses: above-average dividend yields and track records; low to moderate per-share price-to-earnings ratios; and above-average long-term capital gains.

That’s why we’ve continually recommended buying Canada’s top five bank stocks since the 1970s. It’s also why that advice has paid off so nicely. 

Top Canadian companies to invest in typically offer stable dividends

It’s realistic to assume dividends from blue chip companies will continue to contribute around a third of your total return. In addition,

Dividends can grow. Stock prices rise and fall. Interest on bonds holds steady at best. But dividend paying stocks like to ratchet their dividends upward—hold them steady in a bad year, raise them in a good one. That gives you a hedge against inflation.

Dividends are a sign of investment quality. Some good companies reinvest profit instead of paying dividends. But fraudulent and failing companies are hardly ever dividend paying stocks. So if you only buy stocks that pay dividends, you’ll automatically stay out of almost all the market’s worst stocks.

For a true measure of stability, focus on those companies that have maintained or raised their dividends during the recent recession and stock-market downturn. That’s because these firms leave themselves enough room to handle periods of earnings volatility. By continually rewarding investors, and retaining enough cash to finance their businesses, they provide an attractive mix of safety, income and growth. 

Use our three-part Successful Investor approach to help guide your selections in the top Canadian companies to invest in  

• Invest mainly in high-quality, well-established companies, with a history of earnings if not dividends;
• Diversify across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities);
• Downplay or stay out of stocks that are in the broker/media limelight.

What has your experience with traditional blue chip companies been like?