Investors generally look to aggressive stocks for capital gains and to more conservative stocks, like utilities, for income. However, there are some aggressive Canadian dividend paying stocks whose payouts are as high — or even higher — than more established companies.

(We updated our buy/sell/hold advice on a high-dividend aggressive stock in the February 25, 2011, Stock Pickers Digest hotline. See below for further details.)

Dividends are a plus in aggressive investing — but focus on quality

As with conservative dividend-paying stocks, aggressive Canadian dividend paying stocks offer investors a measure of security. Dividends, after all, are much more stable than earnings projections. More important, dividends are impossible to fake — either the company has the cash to pay dividends or it doesn’t.

However, it’s important to avoid judging a company based solely on its dividend yield (the percentage you get when you divide a company’s current yearly payment by its share price). That’s because high yield can sometimes be a danger sign rather than a bargain. For example, a Canadian dividend paying stock’s yield could be high simply because its share price has dropped sharply (because you use a company’s share price to calculate yield). The share price drop may be due to selling by insiders or well-informed successful investors.

As well, you should always remember that while aggressive stocks hold the potential for greater gains than conservative selections, they expose you to a higher level of risk — whether or not they pay dividends.

That’s why we recommend that you look beyond dividend yield when making investment decisions. Look for companies that have established a business and have at least some history of building revenue and cash flow.

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Russel Metals: A high-dividend aggressive stock that’s an industry leader

In the February 25, 2011 Stock Pickers Digest hotline, we updated our buy/sell/hold advice on Russel Metals (symbol RUS on Toronto). The company is one of North America’s largest metal distributors. It serves its roughly 18,000 customers through a network of 58 Canadian and 12 U.S. locations.

The company’s revenue and earnings rose sharply in the latest quarter. Russel saw strong revenue gains from all three of its divisions: The energy tubular products division, which supplies pipes for oil and gas exploration and development, saw its revenue rise 31% on higher demand for oil and gas rigs. The steel distribution division’s revenue also rose 31%, due to higher flat rolled steel prices. Metal services revenue rose 29% on higher sales volumes and steel prices.

In 2009, lower steel prices during the recession prompted the company to cut its quarterly dividend by 44.4% to $0.25 a share from $0.45. However, thanks to the strong results in the latest quarter, Russel announced that it is raising its quarterly dividend by 10%, to $0.274 a share. The new annual rate of $1.10 yields 4.3%. That’s a high yield, especially for a stock in the volatile Manufacturing & Industry sector.

This Canadian dividend paying stock’s resource exposure adds risk — and the potential for further gains

Russel gets about 34% of its sales from clients in the oil and gas drilling industry. That, plus its exposure to fluctuating steel prices, adds risk. In our February 25, 2011, Stock Pickers Digest hotline (which you can immediately view when you take a one-month free trial to Stock Pickers Digest), we take a close look at the company’s long-term outlook, and see if it is well-positioned to manage that risk and make further gains—including the possibility of further dividend hikes.

(Note: If you are a current Stock Pickers Digest subscriber, please click here to view Pat’s recommendation. Be sure to log in first.)

If you buy aggressive stocks, you really should have a subscription to Stock Pickers Digest. The latest issue gives you our full analysis, including clear buy/sell/hold advice, on 19 stocks that may be suitable for the part of your portfolio you devote to aggressive investing. What’s more, you can get this issue free. Click here to learn how.