We think investors will profit most — and with the least risk — by buying shares of well-established, dividend-paying companies with strong business prospects. These are companies that have strong positions in a healthy industry. They also have strong management that will make the right moves to remain competitive in a changing marketplace.

A company with a long-term record of paying dividends gives investors a measure of safety. Dividends, after all, are much more stable than earnings projections. More important, dividends are impossible to fake — either the company has the cash to pay them or it doesn’t.

That’s not to say there won’t be surprises that affect every company in a particular industry. But well-established, dividend-paying stocks have the asset size and financial clout — including solid balance sheets and strong cash flow — to weather market downturns or changing industry conditions.

Canadian dividend stocks offer both capital-gain growth potential and regular income from dividend payments. In fact, dividends are likely to still be paid regardless of how quickly the price of the underlying stock rises.

True Blue Chips pay off Learn everything you need to know in 'The Best Blue Chips for Canadian Investors' for FREE from The Successful Investor. Canadian Blue Chip Stocks: Bank of Nova Scotia Stock, CP Rail Stock, CAE Inc. Stock and more.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

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 23% on dividends, compared to 50% on interest income). Investors in the higher tax bracket pay tax on capital gains at a rate of 25%.

A couple of decades ago, you could assume that dividends would supply up to about one-third of the stock market’s total return. Dividend yields are lower than they used to be, of course. But it’s still safe to assume that dividends will supply perhaps a quarter of the market’s total return over the next few decades. That’s a major tax-deferral opportunity, even though taxes on dividends are lower than on interest, they are scheduled to drop even more in some provinces.

When you add in the security of stocks that have dividend records going back many years or decades, and include the potential for tax-advantaged capital gains as well as dividend income, Canadian dividend stocks are an attractive way to increase profit at the least risk.