Here’s how to find top Canadian stocks to buy for superior long-term portfolio returns

Canadian dividend stocks

Your search for top Canadian stocks should focus on blue chips that pay sustainable dividends and meet our Successful Investor criteria

We continue to think investors will profit most—and with the least risk—by buying shares of well-established companies that have strong business prospects and strong positions in healthy industries.

You will have a strong selection of these top blue-chip stocks in your portfolio when you follow our three-part investing program, which forms the core of all the advice you get in our newsletters and investment services, and on TSI Network. Use this approach to put the top Canadian stocks to buy in your diversified portfolio.


True Blue Chips pay off

Learn everything you need to know in 'The Best Blue Chips for Canadian Investors' for FREE from The Successful Investor.

Canadian Blue Chip Stocks: Bank of Nova Scotia Stock, CP Rail Stock, CAE Inc. Stock and more.




Use our 3-prong investing philosophy to find the top Canadian stocks to buy

We believe that high-quality stocks are best for your portfolio. To find those stocks, and build a sound portfolio, start with our Successful Investor philosophy:

  1. Invest mainly in high-quality, well-established companies, with a history of earnings if not dividends;
  2. Diversify across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities);
  3. Downplay or stay out of stocks that are in the broker/media limelight.

“Buy and hold” is a bad way to describe what we recommend. We prefer “buy and watch closely.” But we still think frequent trading is apt to make money only for your broker.

In short, our strategy focuses on the concept of “buy and watch closely.”

Obviously, it is easier to hold high-quality stocks that perform well over time. But we do not recommend that you hold indefinitely.

We advise selling particular stocks when we feel the situation has changed and they no longer qualify as high-quality investments. We also sell if we decide that a stock isn’t as high-quality or well-established as it needs to be to cope with the challenges it faces. Of course, many of our sales are due to a successful takeover of a company’s stock, which generally results in a major profit.

Buy the top Canadian stocks to bring consistent dividends to your portfolio

One of the best ways of picking a quality Canadian dividend stock is to look for companies that have been paying dividends for at least 5 to 10 years. Companies can trump up quarterly earnings, issue press releases to appear to be making strong progress, but they cannot fake dividends. Dividends are cash outlays that an unsuccessful company could never produce. A history of dividend payments is one commonality that all the best dividend stocks have.

Dividend stocks are a sign of investment quality. Some good companies reinvest profit 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.

Dividends are far more reliable than capital gains. A stock that pays a $1 dividend this year will probably do the same next year. In addition, top dividend-paying stocks like to ratchet those payments upward—hold them steady in a bad year, and raise them in a good one. That also gives you a hedge against inflation.

Furthermore, for a true measure of stability, we focus on those companies that have maintained or raised their dividends during economic downturns. 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.

Top Canadian stocks to buy that pay dividends 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%.

Canadian bank stocks are great additions to most investor portfolios holding top stocks

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 as well as their sound capital bases.

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.

We believe Canadian bank stocks are still well positioned to weather the current downturn in the Canadian economy, contrary to pessimistic forecasts on the banks’ prospects from some in the business media.

How worried are you about the Big Five banks and their exposure to COVID-19?

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