Stocks that give dividends we view as highly sustainable are great additions to a portfolio. Just follow our key tips.

dividend investing for beginners

Finding top stocks that give dividends will be a lot easier when you follow our three-part Successful Investor approach. Here’s our advice:

Obviously, not all stocks that give dividends are equal. Some dividend-paying stocks will provide more value—and more sustainable payouts—for investors over the course of time.

Stocks with a history of raising their dividends are of great interest to investors looking to get the most from their investments. Canadian dividends qualify for the dividend tax credit, unlike bond-interest payments, which are taxed as regular income. That means dividend income will be taxed at a lower rate than the same amount of interest income.


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Look at these factors to understand if stocks that give dividends will keep paying those dividends 

  1. Look for companies with along-term record of success. These companies are the most likely to keep paying and increasing their dividends.
  2. The current financial health of a company. If a company is doing well, has done so consistently, and shows signs of growth, these factors are indicative of stocks that will keep paying a dividend.
  3. A company’s current dividend. If a company currently offers a healthy dividend, this is a good sign of its potential to continue offering a steady dividend.
  4. How does the company manage its relationships with investors? If there is a favourable relationship, and the company fits the other qualifications listed above, it may be a good dividend-paying stock to invest in.
  5. Note the competition. Look for companies with a strong hold on a growing market and a unique product or service that cuts its competition. 

Check for dividend sustainability by looking at the payout ratio 

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 or cash flow is allotted to paying dividends.

If a company keeps its payout ratio fairly steady, and its earnings and cash flow grow, the amount you receive in dividends should also grow. However, if a company must keep paying out a larger and larger percentage of its earnings and cash flow just to maintain the dividend, it is reasonable to wonder whether the company is in decline and the dividend is in danger of being cut.

You need to look at other factors, as well, of course. The company may be going through a low cycle in its industry, or have a temporary problem it has a good chance of solving.

Invest in stocks that give dividends within these sectors to add income—and growth—to your portfolio

Utilities and Canadian banks 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 most if not all of the five sectors.

While we continue to recommend that you spread your investments out across the five main economic sectors (Manufacturing & Industry; Resources; Consumer; Finance; and Utilities), the proportion of 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 the 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.

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. 

Here are key dates to know when you invest in stocks that give dividends

Declaration Date: Several weeks in advance of a dividend payment, a company’s board of directors sets the amount and timing of the proposed payment. The date of that announcement is known as the declaration date.

Payable Date: Is the date set by the board on which the dividend will actually be paid out to shareholders.

Record Date: Only shareholders who hold the stock before the payable date will receive the dividend payment. That date is known as the record date. It’s set any number of weeks before the payable date.

Ex-dividend Date: Two business days before the record date, the shares begin to trade without their dividend. This date is the ex-dividend date. If you buy stocks one day or more before their ex-dividend date, you will still get the dividend. That’s when a stock is said to trade “cum-dividend,” or “with dividend.” If you buy on the ex-dividend date or later, you won’t get the dividend. The ex-dividend date is in place to allow pending stock trades to settle.

Find the top stocks that give dividends by using our three-part Successful Investor approach

  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.

Are stocks that give dividends your main focus while investing? If not, what is?

How much does your portfolio profit from dividend stocks?

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