Topic: How To Invest

Here’s how to find the Top Canadian Stocks for better portfolio returns

top Canadian stocks

Successful Investors focus on high-quality, mostly dividend-paying companies with a history of success in order to build a portfolio of the top Canadian stocks

We recommend that most, if not all, investors stick to high-quality stocks. These stocks will have, in general, been successful for a decade or more. They’ve also shown that they have a durable business concept. While they can suffer in economic and stock-market downturns like any stock, most thrive again when the good times return, as they inevitably do.

Top Canadian stocks generally meet these criteria. Here’s more on those factors, as well as a number of others.


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Finding top Canadian stocks with the help of our three-part Successful Investor philosophy

We believe that high-quality stocks are the best way to achieve above-average long-term portfolio gains. To find those stocks, start with our three-part Successful Investor philosophy: 

  • Invest mainly in high-quality, well-established companies, with a history of earnings if not dividends;
  • Diversify across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities);
  • Downplay or stay out of stocks that are in the broker/media limelight.

Our long-term Successful Investor approach includes diversifying

As mentioned, you can cut market-sector risk by spreading your money out across most, if not all, of the five main economic sectors. This way, you avoid overloading yourself with stocks that are about to slump simply because of industry conditions or changes in investor opinion.

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.

Top Canadian stocks include top blue chips and bank stocks

You can still look at blue chips as the strongest and most secure stocks on the market. Just be sure you look at the stock’s qualities and not just at the “blue chip” label. That’s because some blue chips only get their reputation through a strong public relations effort or by being in the right industry or business situation at the right time and place.

When assessing if blue chip companies are good companies to invest in, you need to ask: What are they doing to remain vital? These companies hold strong positions in healthy industries. They also have strong management that will make the right moves to remain competitive in a changing marketplace.

Stocks like these give investors an additional measure of safety in volatile markets. And the best ones—the top companies to invest in—offer an attractive combination of low p/e’s (the ratio of a stock’s price to its per-share earnings), steady or rising dividend yields (annual dividend divided by the share price) and promising growth prospects.

Bank stocks are shares of financial institutions that are licensed to receive and hold deposits and also loan money out to individuals and business. The Successful Investor approach has long recommended that most Canadian investors own two or more of the Big Five Canadian bank stocks (TD Bank. Bank of Nova Scotia, CIBC, Bank of Montreal and Royal Bank). That’s mainly because of their importance to Canada’s economy. They are also key lower-risk investments for a portfolio. The Big Five also have long histories of regular dividend increases.

Conservative or income-seeking investors may want to emphasize utilities and Canadian banks in their portfolios, because of the high and generally secure dividends that these stocks provide.

Top Canadian stocks pay dividends and have been doing so for years

Dividend stocks rarely get the respect they deserve, especially from beginning investors. That’s because a yearly 2% or 3% or 5% dividend barely seems worth mentioning alongside possible yearly capital gains of 10%, 20%, 30% or more.

One of the best ways of picking a quality Canadian 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, 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.

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 (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%.

Do you look to a particular sector for the top Canadian stocks to invest in, and what criteria do you utilize in making your stock picks?

Do you stick to blue chip Canadian stocks or do you think there are high-quality Canadian stocks that don’t have that label?

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