The most reliable stocks to invest in have a history of success and dividends that have increased over time

The most reliable stocks to invest in pay sustainable dividends that have been maintained or raised during economic or stock-market downturns. Generally, 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 also provide an attractive mix of safety, income and growth.

A track record of dividend payments is a strong sign of reliability and an indication that investing in the stock will likely be profitable for you in the future.

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When you’re looking for the most reliable stocks to invest in, look for high-dividend Canadian stocks that also have long-term value

At TSI Network, we’ve always placed a high value on dividend stock investing, mainly because it provides something of a measure of safety for stocks we recommend.

After all, you can’t fake a record of dividends. It takes a lot of success and high-quality management for a company to generate the cash necessary to declare and pay a dividend every year for five or 10 years or more.

We also recommend dividend-paying stocks because Canadian taxpayers who hold them are eligible for the dividend tax credit.

This dividend tax credit—which is available for dividends paid on Canadian stocks held outside of an RRSP, RRIF or TFSA—will cut your effective tax rate.

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%.)

The most reliable Successful Investor stocks to invest in have a dividend yield that isn’t “too” high

Dividend yield, and high yield especially, can give you a false sense of security. Some investors in high-dividend stocks have a natural tendency to think that all investment income is nearly as safe and predictable as bank interest. In fact, dividend payments can dry up in a heartbeat. Companies are sometimes unable to honour their commitments, and they sometimes spring the bad news on investors with no warning.

Rather than a sign of a bargain, an unusually high yield may be a danger signal. It may mean insiders are selling and pushing the price down. A falling price makes yield go up (because you use the latest dividend to calculate yield). When a company does cut or halt its dividend, its yield collapses.

Many of the most reliable stocks to invest in have a history of steady dividends

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.

Dividend-paying stocks also give investors an additional measure of safety in volatile markets. And the best ones offer an attractive combination of moderate p/e’s (the ratio of a stock’s price per share to its per-share earnings), steady or rising dividend yields (annual dividend divided by the share price), and promising growth prospects.

Furthermore, by diversifying across most if not all of the five sectors, you avoid overloading yourself with stocks that are about to slump simply because of industry conditions or investor fashion. That’s a key component of our Successful Investor philosophy.

Dividend-paying stocks are some of the most reliable stocks to invest in and they can be a big part of long-term investment gains

If you stick with top-quality dividend stocks, the income you earn can supply a significant percentage of your total return—as much as a third of your gains. And at the same time, dividends are more dependable than capital gains as a source of investment income.

Above all, note that when it comes to investment safety, a long history of steady dividends is more important than a current high dividend yield.

All in all, good dividend stocks are a valuable component of any sound Successful Investor investment portfolio.

How much attention do you pay to dividend yield?