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Topic: Wealth Management

Looking to invest in the best Canadian bank dividend stocks? Here’s how to do it for maximum portfolio gains.

Buying the best Canadian bank dividend stocks can be a profitable endeavour—if you make your selections wisely. Learn more in this article now

If you’ve decided to start by investing in just one Canadian bank, one key question remains: which Canadian bank is best to invest in today? How can you tell which bank will give you the best long-term performance? There are a few performance clues you can look out for.

All in all, when deciding on the best Canadian bank dividend stocks to buy, you want to start with the same criteria you would use in any investment.

Invest in your Financial Future for FREE

Learn everything you need to know in '9 Secrets of Successful Wealth Management' for FREE from The Successful Investor.

Secrets of Successful Wealth Management: 9 steps to the life you've always wanted, before and after retirement.

The best Canadian bank dividend stocks have long been among our top choices for growth and income—and COVID-19 has done nothing to change that

We’ve long recommended that virtually all Canadian investors own two or more of the Big Five Canadian bank stocks—Bank of Nova Scotia, Bank of Montreal, CIBC, TD Bank and Royal Bank. That’s mainly because of their importance to Canada’s economy. And that hasn’t changed despite continuing COVID-19 uncertainty and economic fears about the impact of the Delta-variant.

Banks remain key lower-risk investments for a portfolio. As well, the Big Five Canadian bank stocks all have long histories of dividend increases.

We believe Canadian bank stocks are still well-positioned to weather downturns in the Canadian economy. Meanwhile, all five stocks trade at attractive multiples to earnings. 

Big-Five Spotlight: Bank of Nova Scotia, (Toronto symbol BNS), is a buy

Bank of Nova Scotia is Canada’s third-largest bank by assets. It remains a top pick among Canada’s big five banks. That’s mainly because it continues to expand in regions like Latin America and South America.

The bank has completed several acquisitions in the past few years. They include buying 68.19% of BBVA Chile for $2.2 billion U.S. BBVA is the South American country’s sixth- largest bank.

Bank of Nova Scotia also paid $978 million in stock for Jarislowsky Fraser. The Montreal wealth management firm caters to institutional investors and high-net-worth individuals.

In addition, the bank acquired MD Financial Management for $2.7 billion. That firm sells wealth management services to Canadian medical doctors and their families.

Bank of Nova Scotia is a buy. Recommended in The Successful Investor, TSI Dividend Advisor and Canadian Wealth Advisor.

Apply these three tips for using dividends as a barometer for picking the best Canadian bank dividend stocks

  1. Bank stock dividends are a sign of investment quality. Some good banks reinvest a major part of their profits instead of paying dividends. But failing banks hardly ever pay dividends. So, if you only buy bank stocks that pay dividends, you’ll automatically stay out of almost all the market’s worst banks.
  2. Bank stock dividends can grow. Stock prices rise and fall, so capital losses may follow capital gains, at least temporarily. Interest on a bond or GIC holds steady, at best. But banks like to ratchet their dividends upward—hold them steady in a bad year, raise them in a good one. That also gives you a hedge against inflation. For a true measure of stability, focus on banks that have maintained or raised their dividends during economic and stock market downturns. These banks 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. Canadian bank stocks are well-known for their financial stability in the face of economic downturns.
  3. Look for Canadian bank stocks with consistent dividends. A history of dividend payments is one trait that all the best bank dividend stocks have. One of the best ways of picking a quality stock is to look for banks that have been paying dividends for at least 5 to 10 years.

The best Canadian bank dividend stocks will also give you a dividend tax credit

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—which is available on 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.

Use our three-part Successful Investor approach while targeting the best Canadian bank dividend stocks 

  1. Invest mainly in well-established, dividend-paying companies;
  2. Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; the Consumer sector; Finance; Utilities);
  3. Downplay or avoid stocks in the broker/media limelight. 

Some banks have been accused of losing retirement savings plans. Does this worry you about investing in these banks?

Do you hold Canadian bank dividend stocks in your portfolio? What would convince you to consider selling them?


  • Dorothy Goddard  

    Yes, banks are a good investment as they pay dividends and interest rates are so low that the only place to make money is the stock market. Banks are stable in Canada as well.

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