Characteristics of the best stocks with dividends typically include long dividend track record, along with market prominence

Stock prices rise and fall. However, the best stocks with dividends like to ratchet their dividends upward over time—holding them steady in a bad year, and raising them in a good one. That also gives you a hedge against inflation.

Good dividend stocks are a valuable component of any sound investing portfolio.

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The best stocks with dividends have a history of paying a dividend

One of the best ways of picking a top-quality 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 or 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 something that all the best dividend stocks have in common.

We also 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. Minor firms can’t do that.

The best stocks with dividends can feature hidden assets

When researching the best dividend stocks, take a close look at their balance sheet. Can you spot any hidden assets? For instance, when a company buys real estate, the purchase price goes on its balance sheet at the historical value of the asset. Over a period of years or decades, the market value of that real estate may climb substantially. But the historical purchase price remains unchanged on the balance sheet.

The best time to find hidden assets is when they’re still hidden, long before the company begins taking steps to profit from them. Understanding and seeking out hidden assets while you’re evaluating a stock can add enormously to your profits in the course of an investing career. But you need patience to profit from them, because they can stay hidden for a long time after you buy.

Hidden assets can also cut your risk. Stocks with hidden assets are likely to hold up better than those whose assets are easier to spot, since they are among the last stocks that experienced, successful investors sell. When times are good, on the other hand, stocks with hidden assets tend to do better than average. Good times give them opportunities to put their hidden assets to work.

The best stocks with dividends get even better for Canadian investors

Canadian taxpayers who hold Canadian dividend stocks get an additional bonus. 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.

A couple of decades ago, you could assume that dividends would supply up to about one-third of the stock market’s total return. Due to the rise in stock prices since the 2008/2009 downturn, some dividend yields are lower than they used to be. But many top firms have also raised their dividends, so it’s still safe to assume that dividends will continue to supply as much as a third of the market’s total return.

When you add in the security of stocks that have dividend records going back many years or decades, 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.

The best stocks with dividends are high-quality selections

We recommend that you buy high-quality stocks. These stocks have in general been successful for a decade or more, perhaps much longer. But in any case, they have shown that they have a durable business concept. They can suffer in economic and stock-market downturns, like any stock. But most thrive again when the good times return, as they inevitably do.

Some high dividend yields are controversial because they may be bad investments in disguise. Beyond the history of the dividend being paid, what elements do you look at when considering a stock with a high dividend yield?