5 tips on how to get dividends from your investments with the least risk

how to get dividends

Ever wonder how to get dividends that are the most secure and sustainable? Here are some tips.

The best Canadian dividend stocks respond to tough economic times by doing their best to maintain, or even increase, their payouts. As well, dividends are impossible to fake—either the company has the cash to pay dividends or it doesn’t.

How to get dividends is often on the minds of savvy investors, even if dividends rarely get the respect they deserve, especially from beginning investors. Dividend paying stocks with yearly 2% or 3% or 5% yields barely seem worth mentioning alongside yearly capital gains of 10%, 20% or 30% or more.


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Sound dividend stocks give you a special reason to invest in them

The best stocks to hold in your portfolio all have one thing in common: They give you reason to believe they might be worth holding on to indefinitely.

Most of these stocks have an established business and a history of sales gains, plus some earnings, if not dividends. To put it more simply: these stocks have a clear business plan that seems to be working.

Of course, stocks like these will still suffer in a deep market downturn. They may also suffer in the shallower, shorter downturns that come along more often. But most recover quickly when the market revives, as it always does. In fact, stocks like these may lead the inevitable market recovery.

See what you need to know about the highest yield dividend stocks.

Investing in Canadian banks is one top suggestion on how to get dividends

We believe Canada’s big banks are still well positioned to weather any downturn in the Canadian economy. They trade at attractive multiples to earnings and continue to raise their dividends.

We’ve long recommended that most Canadian investors should own two or more of the Big Five Canadian bank stocks—Bank of Nova Scotia, Bank of Montreal, CIBC, TD Bank and Royal Bank. That’s mainly because of their importance to Canada’s economy.

Banks remain key lower-risk investments for a portfolio. As well, the big five Canadian bank stocks all have long histories of annual dividend increases.

Discover more on picking Canadian bank stocks and how they can lead to dividends for you.

Investors wondering how to build up their dividend income can utilize dividend reinvestment plans

Dividend reinvestment plans, or DRIPs, allow shareholders to receive additional shares in lieu of cash dividends. DRIPs don’t require the participation of brokers, so shareholders save on commissions.

DRIPs also eliminate the nuisance effect of receiving small cash dividend payments. Second, some DRIPs let you reinvest your dividends in additional shares at a 5% discount to current prices. Third, many DRIPs also allow optional commission-free share purchases on a monthly or quarterly basis.

There are also separate dividend reinvestment plans that are available through most discount brokers (these are called “synthetic DRIPs”). The bookkeeping is simpler with these DRIPs. Under these plans, brokers will reinvest dividends on shares that you hold in your account. Not all your dividend stocks may be eligible for these plans.

Learn more about dividend reinvestment plans and their value to you now.

Look for investment quality if you wonder how to get dividends that are sustainable

Some good companies reinvest profit to spur growth 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 a recession or 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 also provide an attractive mix of safety, income and growth.

Learn more on determining if a stock will keep paying dividends.

Stocks with limited exposure to political risk and exchange rate are worth pursuing if you’re considering how to get dividends that last

All companies with international operations will suffer to some degree from exchange rates. This is especially true of U.S. multinationals, which can lose revenue to a strong U.S. dollar (and therefore weaker foreign currencies). This may be offset by rising sales, and it rarely affects their dividends. Political risk is a greater danger. You will find few if any stocks in our advisories that subject a substantial part of their businesses to the hazards of politically unstable nations or predatory governments.

Discover more ways of picking the best long-term dividend stocks.

Dividend stocks may not be flashy or hot, but they’re dependable, so why do so many young investors ignore them? Are they being misled by unethical brokers?

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