How to find (the safest) stocks paying the highest dividends

stocks paying the highest dividends

Stocks paying the highest dividends are a big part of a successfully portfolio—but watch out for the risks

If you stick with top quality stocks paying the highest dividends, 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.

Good dividend stocks are a valuable component of any sound investment portfolio. But note, though, that when it comes to investment safety, a long history of steady dividends is more important than a current high dividend yield.


When to trust your dividends

“One of the best ways to judge whether a company will keep paying its dividend, or even increase it, is the dividend payout ratio. This simply measures what portion of a company’s earnings are allotted to paying dividends. If a company keeps its payout ratio fairly steady, say at 7% of earnings, and its earnings grow…”
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6 suggestions on finding stocks paying the highest dividends—and how to tell if they will keep paying it

  • Look for companies with long-term success.
  • Examine the current financial health of the company.
  • If a company currently offers a steady dividend, this is a good sign of its potential to continue.
  • Look for companies with a strong hold on a growing market and a unique product or service that cuts its competition.
  • Download my free report Dividend Paying Stocks: How High Dividend Stocks Can Supercharge Your Income Investing to build strength into your portfolio by investing in the best high-quality dividend stocks.
  • Subscribe to TSI Network’s Dividend Advisor. When a dividend-paying stock grabs our attention, we write about it here.

Steady dividends are a sign of investment quality

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, they provide an attractive mix of safety, income and growth.

High-yield dividend stocks with a history of paying a dividend

One of the best ways of picking quality high-yield dividend stocks 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 thing that all the best dividend stocks have in common.

Here’s the biggest risk with stocks paying the highest dividends

When looking for stocks with high dividend yields, you should avoid the temptation of seeking out stocks with the highest yield—simply because they have above-average yields.

That’s because a very high yield may signal danger rather than a bargain if it reflects widespread investor skepticism that a company can keep paying its current dividend.

Dividend cuts will always undermine investor confidence, and can quickly push down a company’s stock price.

Some of the best dividend paying stocks are Utilities and Canadian Finance shares

We continue to recommend that you spread your investments out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources; Consumer; Finance; and Utilities). However, the proportion of your holdings you devote to each sector depends on your temperament and financial goals.

For example, if you’re an income investor, you may wish to place more emphasis on Utilities and Canadian banks. That’s because these firms generally pay high, secure dividends, and have long histories of raising their payments, even during downturns. However, you’ll still want to make sure your portfolio is well-diversified across all of the sectors.

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.

You also increase your chances of stumbling upon a market superstar—a stock that does two to three or more times better than the market average.

Bonus Tip:

Compounding is essential when you’re searching for the best investments to make money

Finding stocks paying the highest dividends while trying to avoid high risk is challenging. A more-passive way is putting compounding to good use. Compounding is one key way your personal wealth grows. Compound interest is earning interest on interest. Over time, your long-term investments will earn more and more money from the effects of compound interest.

Compound interest can be applied to dividend-paying stocks, as well as to fixed-return, interest-paying investments like bonds. When you earn a return on past investment returns (including dividends), the value of your investment can multiply. Instead of rising at a steady rate, the number of dollars in your portfolio will grow at an accelerating rate. At the same time, it’s very important to keep an eye on expenses or fees that affect your return. Even 1% a year can be huge drain on your portfolio over time.

Are you holding stocks paying the highest dividends? How long have they been part of your diversified portfolio? Share your experience with us in the comments.

This post was originally published in 2017 and is regularly updated.

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