Looking for the best dividend stock in Canada? Here’s how to find it, and what it will mean for your portfolio returns

We think that Canadian dividend stocks are an important contributor to long-term portfolio gains—and investing in the best dividend stock in Canada will tend to expose you to less risk than a non-dividend-payer. That’s why the majority of your stocks should be dividend-payers at all times. And as you get older and closer to retirement, you should raise the proportion of dividend-paying stocks in your portfolio, to cut risk and improve the stability of your investment results.

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

The Growing Power of Dividends Learn everything you need to know in '7 Winning Strategies for Dividend Investors' for FREE from The Successful Investor. The Best Canadian Dividend Stocks to Buy: REITS Canada and other Top Canadian Dividend Stocks.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

Invest in the best dividend stock in Canada for favourable long-term investment results

The best dividend stocks provide you with consistent dividends year after year. That’s key to your long-term investment success, because those dividends can contribute as much as a third of your total return.

Even though the best dividend stocks can be your most profitable investments, dividends rarely get the respect they deserve, especially from beginning investors. That’s because a dividend-paying stock’s yearly 2% or 3% or 5% yield barely seems worth mentioning alongside yearly capital gains of 10%, 20% or 30% or more.

Looking for the best dividend stock in Canada? It will have these characteristics

1. The best dividend stocks offer sustainable dividends: It’s important to watch out for unusually high dividend yields. Investors should avoid judging a company based solely on its dividend yield. That’s because a high yield can sometimes be a danger sign rather than a bargain—it can signal an imminent dividend cut.
2. The best dividend stocks will include these financial factors: As a general rule, companies that make money regularly are safer than chronic or even occasional money losers. If you only buy dividend-paying stocks, you’ll avoid most frauds. Furthermore, the more manageable the debt, the better. When bad times hit, debt-heavy companies often go broke first—especially ones that also keep trying to allocate part of their cash flow to paying dividends.
3. The best dividend stocks have hidden assets: Successful investors recognize that hidden assets are a great way to cut risk, for conservative and aggressive investors alike. One great example is research and development.

Invest in the best dividend stock in Canada and you also get a tax break

Canadian taxpayers who hold Canadian dividend stocks get a special bonus. Their dividends can be eligible for the dividend tax credit in Canada. This dividend tax credit 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.

Use our three-part Successful Investor approach to find the best Canadian dividend stocks

You still need to observe our three key portfolio rules, even when confining your investments to stocks with strong dividend records. They are:

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.

Just remember that if you place too high a value on any single investment attribute, you may overlook signs of associated, or offsetting, risk. That’s something an investor needs to avoid at all times.

Bonus tip: You should know these key dividend payment dates

The declaration date is the date on which a company’s board of directors actually sets the amount of the next dividend. Typically, it is a number of weeks in advance of the actual payout date.

The record date is the date on which a person has to actually own shares in the company in order to receive the declared dividend.

The ex-dividend date is typically the last business day before the record date. The ex-dividend date is in place to allow pending stock trades to settle. In short, the security trades without its dividend any day after the ex-dividend date. If you buy a dividend-paying stock one day before the ex-dividend you will still get the dividend; if you buy on the ex-dividend date or after, you won’t get the dividend. The reverse is true if you want to sell a stock and still receive a dividend that has been declared: you will need to sell on the ex-dividend day or after.

The payable date is the date on which the dividend is actually paid out to the shareholders of record.

In your opinion, do steady dividends make up for less impressive stock gains?