Here’s how to find the best Canadian stocks to invest in for both growth and income

Looking for the top Canadian stocks to invest in for a winning portfolio? Companies with a history of profits and sustainable dividends are just the starting point

Are you looking for Canadian stocks to invest in? Most successful investors are content to build wealth steadily without taking enormous risks for the simple reason that this approach works far better than any other.

By seeking investment quality and following sound investment principles, you increase your chances of finding superstar stocks that move faster than the market average. These stocks are also more likely to emerge first from a down market as leaders in their economic sectors. In other words, you can make safer investments and still achieve substantial gains.

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Look to bank shares as some of the best Canadian stocks to invest in

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.

If you’ve decided to start by investing in just one Canadian bank, the question remains, which Canadian bank is best to invest in today? How can you tell which bank will give you the best long-term performance?

In short, we think most Canadian investors would benefit from owning one or more of the Big Five banks—and we see all of them as buys (Bank of Montreal, TD Bank, CIBC, Scotiabank and Royal Bank).

We believe Canadian bank stocks are still well-positioned to weather downturns in the Canadian economy, contrary to pessimistic forecasts on the banks’ prospects from some in the business media. They trade at attractive multiples to earnings and continue to raise their dividends.

Canadian banks stocks have always been some of the best income-producing securities.

Target dividend-paying blue-chip stocks to find Canadian investments for both growth and income

A company with a long-term record of paying dividends is generally one that is most deserving of the “blue chip” label. 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 them or it doesn’t.

The best blue chips offer both capital gains growth potential and regular dividend income. The dividend yield is certainly one of the most concrete indicators of a sound investment. It is the percentage you get when you divide the current yearly dividend payment by the share or unit price of the investment. It’s an indicator we pay especially close attention to when we select stocks to recommend in our investment newsletters.

The top Canadian dividend stocks offer you an added bonus:

Taxpayers who hold Canadian dividend-paying 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 roughly 29% on dividends, compared to about 50% on interest income. Investors in the highest tax bracket pay tax on capital gains at a rate of 25%.

Spread your holdings out when you find Canadian stocks to invest in

Properly diversifying a portfolio is a good way for investors to cut risk at the same time they maximize portfolio returns. Meanwhile, the proper proportions for you depend on your temperament and circumstances.

As part of your initial portfolio management approach, you should aim to invest in a minimum of four or five stocks—one from each of most, if not all, of the five main economic sectors (Manufacturing & Industry; Resources; Consumer; Finance; and Utilities). After that, you can gradually add new stocks to your portfolio as funds become available, taking care to spread your holdings out as we advise.

We suggest that the upper limit for any portfolio is around 40 stocks. Anything above that number and even your best choices will have little impact on your personal wealth.

Use these four key pointers to find Canadian stocks to invest in and achieve better long-term results

  • To get any real value out of any investment measure, p/e’s included, you need to look at them in the context of everything else that’s going on in the market and in individual stocks.
  • Most investment measures fall on a spectrum that ranges from suspiciously cheap to extraordinarily expensive.
  • It’s a mistake to focus on stocks in the “suspiciously cheap” end of the p/e spectrum. It’s also a mistake to reject stocks out of hand, just because their high p/e’s make them seem too expensive.
  • Most investors, most of the time, will find their best opportunities in the middle of the spectrum, far from the extremes of suspiciously cheap to extraordinarily expensive.

Use our three-part Successful Investor approach to find Canadian stocks to invest in

  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.

How confident do you feel about your portfolio of Canadian stocks?

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