Knowing the qualities of the best dividend shares, like an established history of paying dividends, will help you make the best picks for your portfolio
If you stick with top-quality, high dividend yield stocks, the income you earn can supply a significant percentage of your total return—as much as a third of your gains.
Meantime, it bears repeating, that when it comes to investment safety, a long history of steady dividends is more important than a current high dividend yield (more on this below). The best dividend shares are a valuable component of any sound investment portfolio.
The Growing Power of Dividends
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The Best Canadian Dividend Stocks to Buy: REITS Canada and other Top Canadian Dividend Stocks.
The best dividend shares will be key contributors to your portfolio returns
No one can predict which stocks will be average performers, which will be losers, and which ones will turn into the superstocks that wind up rising five-fold, 10-fold or more. But overall, we find dividend stocks to be less volatile, and among the safer investments you will hold in your portfolio.
Even though the best dividend shares in your portfolio can turn out to be your most profitable investments, dividends rarely get the respect they deserve, especially from beginning investors. However, we’ve always placed a high value on dividend stock investing, mainly because it provides something of a pedigree for stocks we recommend.
At the same time, though, we do recommend looking beyond dividend yield when making investment decisions because an unusually high dividend yield among the highest dividend stocks can be a sign of hidden risks.
A 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) in anticipation of a dividend cut. We recommend that you look for companies that will be able to keep paying their dividends because they have established a sound business and a history of building revenue and cash flow.
Look for these characteristics to find the best dividend shares
A history of sustainable dividends is a key characteristic of the best dividend shares. Stick to the best dividend shares and you’ll avoid most of the market’s greatest disasters.
As well, one of the best ways to pick a solid dividend-paying company is to seek out those that have been paying dividends for at least 5 to 10 years. Companies can trump up quarterly earnings and create press releases to appear to be making progress, but they cannot fake dividends. The longer they have been paying dividends the better the chances that they will increase their dividend payout as well.
The best dividend shares provide investment quality to your portfolio
Some good companies reinvest their profits instead of paying dividends. But fraudulent and failing companies hardly ever pay dividends. So, if you only buy stocks that pay dividends, you’ll automatically stay out of almost all the market’s worst stocks.
We look for dividend stocks that have industry prominence, if not dominance. Our reasoning, besides brand recognition, is that major companies can influence legislation, industry trends, etc. to suit themselves. Minor firms can’t do that.
Dividend stocks are an important contributor to your long-term gains, and dividend-paying stocks tend to expose you to less risk than non-dividend payers. That’s why the majority of your stocks should be dividend payers at all times. As you get older and closer to retirement, you should raise the proportion of dividend-paying stocks in your portfolio to cut risk and improve the stability of your investment results.
Canadian blue chips are among the best high-paying dividend stocks
A company with a long-term record of paying dividends is generally one that is most deserving of the “blue chip” label in its traditional sense. Dividends, after all, are much more stable than earnings projections.
That’s not to say there won’t be surprises that affect every company in a particular industry. But regardless of whether investors opt for stocks with a high dividend yield, picking well-established, dividend-paying stocks benefits most investors. They have the asset size and financial clout (including solid balance sheets and strong cash flow) to weather market downturns or changing industry conditions.
Canadian dividend stocks that meet our Successful Investor criteria offer both capital-gains growth potential and regular income. In fact, dividends are still likely to be paid regardless of how quickly the price of the underlying stock rises.
What’s more, dividends from Canadian companies may come with a tax credit. This cuts your effective tax rate.
All in all, it’s realistic to assume dividends from blue chip companies will continue to contribute substantially to your total return.
Use our three-part Successful Investor approach while looking for the best dividend shares
Hold mostly high-quality, dividend-paying stocks.
Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
Downplay or stay out of stocks in the broker/media limelight.
If a stock does not pay dividends, do you consider it worth investing in?
How would you compare the dividend stocks in your portfolio to those that don’t pay dividends?
Learn everything you need to know in
'7 Winning Strategies for Dividend Investors'
FREE Special Report from The Successful Investor.
The Best Canadian Dividend Stocks to Buy:
REITS Canada and other Top Canadian Dividend Stocks.
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7 Winning Strategies for Dividend Investors
X No, I don’t want to make steady income from dividends.
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