If you’ve been following our TSINetwork.ca Daily Updates, or subscribe to one or more of our newsletters and investment services, you’re likely familiar with our three-part investment advice. A key part of that advice is to invest mainly in well-established dividend-paying stocks.

(The other two parts are to downplay stocks in the broker/media limelight and spread your money across the five main economic sectors: Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities.)

With today’s low interest rates, investors are paying more attention to dividend yields (a company’s total annual dividends paid per share divided by the current stock price). Dividend paying stocks are responding by doing their best to maintain, or even increase, their payouts.

A couple of decades ago, you could assume that dividends would contribute up to a third of your long-term investment returns, without even considering the tax-cutting effects of the dividend tax credit.

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Earlier in this decade, dividend yields were generally too low to provide a third of investment returns. But now that yields have moved up and interest rates have moved down, it’s realistic to assume they will once again contribute as much as a third of your total return. In addition:

1. Dividends can grow. Stock prices rise and fall, so capital losses often follow capital gains, at least temporarily. Interest on a bond or GIC 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.
2. 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.

Look to our Safety-Conscious Stock Portfolio for some of Canada’s best dividend paying stocks

While we continue to recommend that you spread your investments out across the five main economic sectors, the proportion of your holdings you devote to each sector depends on your temperament and financial goals.

For example, if you’re an income investor, you may wish to place more emphasis on utilities and Canadian banks. That’s because these firms generally pay high, secure dividends.

For example, you could pick from the companies in our Canadian Wealth Advisor newsletter’s Safety-Conscious Stock Portfolio. It’s one of the three portfolios you get when you subscribe to Canadian Wealth Advisor (the other two portfolios are our Trust & REIT Portfolio and our ETF Portfolio). We continuously monitor and update all three portfolios.

All 19 of the stocks in the Safety-Conscious Stock Portfolio are dividend-paying stocks. Ten of these stocks come from the Utilities and Canadian Finance sectors. However, you’ll still want to make sure your portfolio is well-diversified within each sector.

You can get our all three of our Canadian Wealth Advisor portfolios, including our Safety-Conscious Stock Portfolio, when you try Canadian Wealth Advisor today. Best of all, you get one month free when you subscribe now. Click here to learn how.