Finding the Best Canadian Dividend Stocks to Buy and Hold

The best Canadian dividend stocks to buy and hold will share a number of characteristics. Here’s what they are:

A track record of dividend payments is a strong sign of reliability and a good indication that you may be investing in the best long-term dividend stocks.

The best Canadian dividend stocks to buy and hold for the long-term will share certain other characteristics that we look at below. First, however, we think it’s important to understand the nuances of the “buy and hold” concept.

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What you need to know about the strategy of buying and holding

From time to time, I read articles saying that growing numbers of financial advisors and stockbrokers are abandoning the traditional buy-and-hold strategy.

For instance, one article stated that some brokers were taking new approaches more aligned with the new “macro-economic climate.” That sounds suspiciously like just another way of trying to guess what will happen next.

Often, this abandoning of the buy-and-hold strategy seems to crop up when the market is down or at least in a state of turmoil, which leaves investors uncertain.

For decades—as long as I’ve been involved with the stock market—some brokers have claimed that they favour the “buy and hold” investing strategy in principle, but that the market is “now” so treacherous and unpredictable that their clients have to indulge in short-term trading, options or whatever to make any money.

Successful investors generally resist this switch. They recognize that you can’t predict market swings, but you can profit from long-term growth in the economy, and from the wealth creation that takes place in well-established companies. Even so, investors become more receptive to the idea in the late stages of a market downturn, when the alternate strategies have beaten “buy and hold” for a year or two.

Most people describe themselves as buy-and-hold investors. But for many, their strategy is more like “buy-and-hold-till-I-get-bored” or “until I hear about something better on TV.”

Another common variant of the strategy is to buy-and-hold-till-the stock goes up, then take my profit and brag about it to anybody who will listen. When the stock goes down instead of up, these investors may switch to buy-and-hold-while-the-stock-goes-down, then-sell-when-it-goes-back-up-to-what-I-paid-for-it.

Of course, there are a variety of ways to build an investment portfolio. Some work better than others.

In short, our strategy is not a strict “buy and hold” but rather “buy and watch closely.” This strategy has done well for our clients and readers over the past few decades.

The best Canadian dividend stocks to buy and hold can also help you with a tax break

Canadian taxpayers who hold dividend-paying Canadian stocks get a tax break. Their dividends can be eligible for the dividend tax credit in Canada. This means that dividend income will be taxed at a lower rate than the same amount of interest income.

Investors in the highest tax bracket pay tax of around 29% on dividends, compared to 50% on interest income—investors in the higher tax bracket pay tax on capital gains at a rate of 25%.

All in all, we think that dividends can contribute up to a third of your long-term investment returns, even without the tax-cutting effects of the dividend tax credit.

The best Canadian dividend stocks to buy and hold can provide steady income

Some good companies reinvest 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. 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 best Canadian dividend stocks to buy and hold share these three qualities

  • The best Canadian dividends can grow.
  • The best Canadian dividend stocks offer consistency.
  • The best Canadian dividend stocks can have hidden assets.

The best Canadian dividend stocks to buy and hold dominate an industry

We look for Canadian 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.

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.

Do you practice buying and holding for as long as you can, or do you find success with short-term selling?

Even if your strategy is buying and holding stocks, at what point do you determine it’s time to sell?


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