We think investors will profit most — and with the least risk — by buying shares of well-established, dividend-paying companies with sound business prospects. These are companies that have strong positions in a healthy industry. They also have strong management that will make the right moves to remain competitive in a changing marketplace.

A well-established company with a long-term record of dividends provides a measure of safety for investors. 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.

That’s not to say that there won’t be surprises that affect every company in a particular industry. But well-established, dividend-paying stocks have the asset size and the financial clout — including solid balance sheets and strong cash flow — to weather market downturns or changing industry conditions.

Canadian dividend stocks offer both capital gain growth potential as well as regular income from dividend payments. In fact, dividends are still likely to be paid regardless of the ups and downs of the underlying stock prices.

Resident Canadians who hold Canadian dividend stocks get an additional bonus. Their dividends are eligible for the dividend tax credit. This means that dividend income will be taxed at a lower rate than the same amount of interest income (around 27% for investors in the highest tax bracket for dividends, compared to 50% for interest income). Investors in the highest tax bracket are taxed on capital gains at a rate of 25%.

Among Canadian dividend stocks, one stock that has caught our attention is a utility that supplies electricity to over 2 million customers in Canada, as well as participating in a number of foreign markets. In addition, it holds hotels and commercial real estate in Atlantic Canada. With a sound plan for growth and exclusive licenses in some markets going as far ahead as 2031, this company has strong, long-term potential.

Even better, this company increased its quarterly dividend by 19% this year, giving it an annual dividend yield of close to 4%. In fact, increases are nothing new for this company: it has increased its dividend for 35 consecutive years.

A couple of decades ago, you could assume that dividends would supply up to about one third of the stock market’s total return. Dividend yields dropped as stock markets rose over the last few years, and supplied perhaps a quarter of the market’s total return. But with stock prices down lately, and dividend yields back up, they can now supply again around one third of total returns.

When you add in the security of stocks that can have paid dividends for decades or more, and include the potential for tax-advantaged capital gains as well as dividend income, Canadian dividend stocks are an attractive way to increase profit with less risk.