Topic: Dividend Stocks

Finding the best stocks to invest in that pay dividends is a lot easier if you follow these tips

August 16, 2022|by Scott Clayton

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The best stocks to invest in that pay dividends can benefit you and your portfolio for years to come. Learn all about dividend investing right here

If you only look for the best stocks to invest in that pay dividends, you’ll automatically stay out of almost all the market’s worst stocks. For a true measure of stability, focus on companies that have maintained or raised their dividends during economic and stock market downturns. These firms leave themselves enough room to handle periods of earnings volatility.

By continually rewarding investors, and retaining enough cash to finance their businesses, top dividend stocks provide an attractive mix of safety, income and growth.

The Growing Power of Dividends Learn everything you need to know in '7 Winning Strategies for Dividend Investors' for FREE from The Successful Investor. The Best Canadian Dividend Stocks to Buy: REITS Canada and other Top Canadian Dividend Stocks.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

Finding the best stocks to invest in that pay dividends can boost your portfolio gains

If you include top-quality dividend stocks in your portfolio, the income you earn can supply a significant percentage of your total return—as much as a third of your gains. And at the same time, dividends are more dependable than capital gains as a source of investment income.

Note, though, that when it comes to investment safety, a long history of steady dividends is more important than a current high dividend yield.

Good dividend stocks are a valuable component of a sound Successful Investor portfolio.

Canadian investors receive extra benefits from finding the best stocks to invest in that pay dividends

Canadian taxpayers who hold Canadian dividend stocks get a special bonus. Their dividends are eligible for the dividend tax credit in Canada. The dividend tax credit—which is applies to dividends paid on Canadian stocks held outside of an RRSP, RRIF or TFSA—will cut your effective tax rate.

This means that dividend income will be taxed at a lower rate than the same amount of interest income.

Canadian 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.

You should also keep these important points in mind:

• Canadian dividends can grow.
• Look for Canadian dividend stocks with consistent performance.
• Canadian dividend stocks can have hidden assets.
• The best Canadian dividend stocks dominate an industry.

Find the best stocks to invest in that pay dividends by considering these financial factors

As we mentioned above, dividend history is very important to dividend growth stocks. Ideally, you should look for dividend growth stocks that have been paying dividends for 5 or more years. As a general rule, companies that make money regularly are safer than chronic or even occasional money losers. Companies can fake earnings, but dividends are cash outlays.  If you only buy dividend-paying value stock picks, you’ll avoid most frauds.

What is the dividend payer’s debt load look like? Would the company have a hard time recovering from an economic downturn? The more manageable the debt is the better. When bad times hit, debt-heavy companies often go broke first. Especially ones that also keep trying to allocate part of their cash flow to paying dividends.

Use our three-part Successful Investor approach to find the best stocks to invest in that pay dividends

1. Hold mostly high-quality, dividend-paying stocks.
2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
3. Downplay or stay out of stocks in the broker/media limelight.

Bonus tip: Pay attention to these dates so you know when to buy the best stocks to invest in that pay dividends

If you do not know when to buy dividend stocks to get the dividend, then take note of these four key stock dividend dates:

• Declaration Date: Several weeks in advance of a dividend payment, a company’s board of directors sets the amount and timing of the proposed payment. The date of that announcement is known as the declaration date.
• Payable Date: Is the date set by the board on which the dividend will actually be paid out to shareholders.
• Record Date: Only shareholders who hold the stock before the payable date will receive the dividend payment. That date is known as the record date. It’s set any number of weeks before the payable date.
• Ex-dividend Date: Two business days before the record date, the shares begin to trade without their dividend. This date is the ex-dividend date. If you buy stocks one day or more before their ex-dividend date, you will still get the dividend. That’s when a stock is said to trade “cum-dividend,” or “with dividend.” If you buy on the ex-dividend date or later, you won’t get the dividend. The ex-dividend date is in place to allow pending stock trades to settle.

What do you value most in a dividend payer?