Investors interested in dividends should only buy the highest-yielding Canadian dividend stocks if they meet certain criteria—and don’t have these risk factors
Dividend yield is the percentage you get when you divide a company’s current yearly payment by its share price.
The best of the highest-yielding Canadian dividend stocks have a history of success
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The Best Canadian Dividend Stocks to Buy: REITS Canada and other Top Canadian Dividend Stocks.
Follow our Successful Investor philosophy over long periods and we think you’ll likely achieve better-than-average investing results.
Our first rule tells you to buy high-quality, mostly dividend-paying stocks. These stocks have generally been succeeding in business for a decade or more, perhaps much longer. But in any case, they have shown that they have a durable business concept. They can wilt in economic and stock-market downturns, like any stock. But most thrive anew when the good times return, as they inevitably do.
Over long periods, you’ll probably find that a third of your stocks do about as well as you hoped, a third do better, and a third do worse. This is partly due to that random element in stock pricing that we’ve often mentioned. It also grows out of the proverbial “wisdom of the crowd.” The market makes pricing mistakes and continually reverses itself. But the collective opinion of all individuals buying and selling in the market eventually beats any single expert opinion.
Canadian dividend stocks and the 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.
That means 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. At the same time, investors in the highest tax bracket pay tax on capital gains at a rate of about 25%.
The Canadian dividend tax credit is actually split between two tax credits. One is a provincial dividend tax credit and the other is a federal dividend tax credit. The provincial tax credit varies depending on where you live in Canada.
A couple of decades ago, you could assume that dividends would supply about one-third of the stock market’s total return. Dividend yields are generally lower today than they were a few years ago, but it’s still safe to assume that dividends will continue to supply perhaps a third of the market’s total return over the next few decades.
So apart from the Canadian dividend tax credit giving you a major tax-deferral opportunity, dividends can supply a big part of your overall long-term portfolio gains.
The highest-yielding Canadian dividend stocks can be riskier than they appear
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. For example, a dividend-paying stock’s yield could be high simply due to the fact that its share price has dropped sharply (because you use a company’s share price to calculate yield) in anticipation of a dividend cut. That’s why we recommend you look beyond dividend yield when making investment decisions, and look foremost for companies that have also established a sound business and a history of building revenue and cash flow.
More on danger signs when looking for the highest-yielding Canadian dividend stocks to buy
When looking for the highest-yielding Canadian dividend stocks, avoid the temptation of seeking out stocks with the highest yields—simply because they have above-average yields. That’s because—as we mentioned earlier—a high yield may signal danger rather than a bargain if it reflects widespread investor skepticism that a company can keep paying its current dividend.
Dividend cuts will always undermine investor confidence, and can quickly push down a company’s stock price.
Above all, for a true measure of stability, focus on stocks that have a high dividend payout that has been maintained or raised during economic or stock-market downturns. Generally, these firms leave themselves enough room to handle periods of earnings volatility. By continually rewarding investors, and retaining enough cash to finance their businesses, they also provide an attractive mix of safety, income and growth.
A track record of dividend payments is a strong sign of reliability and an indication that investing in the stock will most likely be profitable for you in the future.
Have you had a dividend stock that didn’t do as well as you hoped? Did you keep it or sell it?
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The Best Canadian Dividend Stocks to Buy: REITS Canada and other Top Canadian Dividend Stocks.
Retirement investments to avoid include everything from bonds down to stock options. Here’s why.
Our best retirement planning advice is to invest early and often—and don’t forget to use our three-part Successful Investor philosophy.
But if you’re heading into retirement and are short of money, you should move your investing in the direction of safer, more conservative investments. That’s a far better option than taking one last gamble on retirement investments to avoid like the ones we look at below.
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Investing in bonds will hurt your retirement finances
As some investors near retirement, their advisors recommend switching to bonds and other fixed-income investments instead of holding stocks.
To some extent, this is an understandable retirement investing strategy, since bonds can provide steady income and a guarantee to repay their principal at maturity.
However, we are optimistic about the stock market for the rest of this decade, at least in North America. We expect a Successful Investor-style stock portfolio to generate a total return—dividends plus capital gains—that will beat bonds and give you an after-tax, after-inflation profit on your investments.
We continue to recommend that you invest only a small part of your Successful Investor portfolio—if any—in bonds and fixed-income investments.
Investing in annuities can fall into the category of retirement investments to avoid
Here are 3 key drawbacks you should keep in mind when deciding whether annuities are a good choice for your retirement investment options:
It may be hard to get out if you change your mind: Unlike stocks, it can be difficult or impossible to sell an annuity if you decide it no longer meets your needs. Moreover, you will likely get a low price for your annuity because the date of your death is uncertain.
Link to interest rates makes today a poor time to buy annuities: The rate of return you receive on an annuity is linked to interest rates at the time you buy it. That makes periods of still relatively low interest rates an especially poor time for buying annuities. However, if you want to buy annuities, you could buy one annuity a year for the next five years. That way, your returns will increase if interest rates rise, as we expect.
Tax treatment: When you own an annuity, the income payments you receive are made up of interest and a return of your principal. The return of your principal is tax free, but the interest portion of the payment is taxed as ordinary income.
Retirement investments to (especially) avoid include penny stocks, junior mines, and stock options
Penny stocks: Penny stocks are cheap and that’s why many novice investors think they make great investments when they don’t have a lot of money. Here’s some insight: it’s much easier to launch a seductive penny stock promotion than it is to create a successful, lasting business. Most penny stocks are over-hyped. Penny stocks tend to be speculative, and are engaged in such things as finding mineral deposits that can be mined at a profit, commercializing an unproven technology or launching new software. They are unproven companies that have very little chance of becoming a sustainable business. You’ll also have to be on the watch for unscrupulous stock promoters who will over-inflate earnings and talk up a stock for their own best interests. If you’re headed to retirement, stay away from penny stocks.
Junior mining stocks: One rule of thumb for mining stocks is that you have to look at 1,000 “anomalies” to find one “prospect,” and that fewer than one “prospect” in a thousand turns into a mine. In other words, finding a mineable deposit is a million-to-one shot.
That’s one reason why junior mining stocks are highly speculative, and are apt to cost you money. Another reason why junior mines are risky is that it’s relatively cheap and easy to launch an exploration program and sell stock to the public. So, the junior mine’s promotion business attracts more than its share of unscrupulous operators and stock promoters. Putting your savings into the type of business that has a million to one chance of striking it rich is not a retirement investment strategy; it’s gambling.
Stock options: Stock options are not a smart idea if you’re headed into retirement. Stock options are expensive to trade. You pay commissions each time you buy or sell stock options. Commissions eat up a large part of any profits you may make with stock options, particularly if you trade in small quantities. What’s more, every trade costs you money in “slippage,” or the difference between the bid and the ask price. With options, this difference is larger than it is with stocks. Stock options can also be rendered worthless. Unlike common stocks, an option has a limited lifespan.
To profit in stock option investing, you have to be right in three different ways: price direction, price-change magnitude and time—and that’s virtually impossible to do consistently.
Use our three-part Successful Investor approach and you will stay clear of retirement investments to avoid
Invest mainly in well-established, dividend-paying companies;
Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; the Consumer sector; Finance; Utilities);
Downplay or avoid stocks in the broker/media limelight.
Some people believe that investing for retirement has gotten more difficult and complicated due to personal responsibility and institutional accountability. What are your thoughts on this?
What is your approach to investing for retirement? Are there investments you stay away from, and others that you believe contribute more to your portfolio?
Want to know how to find fast-growing stocks for your portfolio? Follow these tips to spot the best—and stay out of the worst
Are you interested in learning how to find fast-growing stocks? Some investors think the best way to profit in stocks is to buy them when they are just barely starting out on a growth phase that can last for years if not decades. Ideally, they want to buy the future top performers when they are still near or close to the penny stock range and have yet to be discovered by the broad mass of investors.
However, these investors rarely find what they’re looking for. Sometimes stocks with intriguing business concepts just never get anywhere. They generate a number of encouraging news releases, but these releases turn out to be a series of exaggerations and broken promises.
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How to find fast-growing stocks for maximum success? Watch out for these three risks:
These stocks tend to be highly volatile, but not consistently so. They may go racing up and down, but also go through long periods of relative price stability.
If you wait to buy on a dip, you may sit through a long rise and miss out on a huge gain.
A bigger risk of waiting to buy on a dip is that the downturn that spurs you to buy may look like a dip at first, but turn out to be the start of a major decline.
Waiting for a dip sounds like conservative, risk-reduced investing. In fact, it’s much more effective at cutting your profits than your risk. Your best guide to conservative investing is to disregard market cliches like “buy on a dip”.
Avoid a momentum investing mindset when deciding how to find fast-growing stocks
Momentum investors include those investors looking to make a quick gain on the so-called “positive earnings surprise.” That’s when a company outdoes brokers’ earnings estimates. These investors view a “negative earnings surprise”—lower-than-expected earnings—as a sell signal. They use a variety of formulas to make buy and sell decisions, but all come down to “buy on strength and sell on weakness.” So, they tend to pile into the same stocks all at once, and the gains that follow are something of a self-fulfilling prophecy. They lack the right kind of investing wealth mindset.
The key problem with a momentum investors mindset is that when the stock’s rise falters, momentum investors try to get out as a group, but there are never enough buyers. This leads to violent price fluctuations for these stocks, or ETFs that hold them. When you hear that a stock reported a 10% earnings gain and its shares dropped 25% to 50%, it often means that the momentum investors who owned it were hoping for, say, a 15% earnings gain.
It’s natural to be tempted to try a momentum investing approach by leapfrogging from one stock to another, and routinely switching out of the laggards in your portfolio and into stocks with better performance. But basing investment decisions on performance alone is bound to cost you money sooner or later.
That’s because it raises your risk of investing in a stock that owes its performance to having gambled and won. When a gambler’s luck turns sour, you may give back all of your winnings and more besides.
All in all, our advice is to have the wealth mindset of a skeptical optimist in your own investing philosophy.
Buying stocks on “the ground floor” can lead to problems when you’re considering how to find fast-growing stocks that will help you profit
Some aggressive investors like to get into fast-growing stocks at what they describe as “the ground floor.”
These investors rarely find what they’re looking for because there’s a large random element in investing, especially at the ground floor. Many promising junior stocks fail to thrive as businesses for one or more of any number of reasons. To borrow from the opening lines of Tolstoy’s Anna Karenina, successful stocks tend to have a lot in common, whereas unsuccessful stocks tend to suffer from their own unique sets of risks and faults.
How to find fast-growing stocks: The most aggressive investors often target the newest and fastest-growing stocks—but most of them won’t pan out
Some of the earliest stage and fastest-growing stocks may start out with a brilliant idea or a plan to get involved in a high-profile or fast-growing business area. They may enjoy an initial burst of sales or even earnings. But many just can’t keep up the momentum. They never reach the critical mass they need to achieve consistent profitability.
This is more common for fast growing stocks in the technology industry, because they compete with well-established, well-financed senior techs. The seniors have an enormous advantage in well-trained staff, sales networks, media contacts and all sorts of other business assets that can take years, if not decades, to develop.
Use our three-part Successful Investor approach for all of your investments, including fast-growing stocks
Hold mostly high-quality, dividend-paying stocks.
Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
Downplay or stay out of stocks in the broker/media limelight.
What would persuade you into buying fast-growing stocks?
How do you plan for volatility or losses when you buy fast-growing stocks?
REIT investing: Real estate investment trusts (including Canadian REITs) can provide you with a stable, profitable way of investing in real estate
Top-quality REITs, Canadian REITs among them, are among the most stable and highest-yielding real estate investments. That’s because many REITs hold high-quality, non-depleting assets, and have taken advantage of low interest rates to lock in financing costs for long terms. The best of the REITs–private or public REITs, U.S. or Canadian REITs–have good management and balance sheets strong enough to weather economic downturns like COVID-19 or the aftermath that we continue to struggle with. They also have high-quality tenants and carefully match their debt with their lease income.
REIT investing is a good option for investors looking to invest in real estate.
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The Best Canadian Dividend Stocks to Buy: REITS Canada and other Top Canadian Dividend Stocks.
REIT investing can kick-start your real estate investing in Canada
Real estate investment trusts focus on income-producing real estate such as office buildings and hotels. That segment of the market is difficult for most investors to access through direct ownership of property. Moreover, real estate investment trusts save you the cost, work and risk of owning investment property yourself.
If you’re investing in real estate primarily for profit, outside of REITs, Canadian REITs included, you should look at multiple-unit rental housing or commercial properties, especially those with big parking lots or extra land. Investments like these can give you current income, plus long-term development possibilities. That’s a potent combination for patient investors. And of course, location is the most crucial part when it comes to real estate investing in Canada or any country.
4 REIT investing questions to ask yourself before buying
Did the REIT buy its assets in the midst of a recent boom, or has it owned them for some time? Bidding for assets in the midst of a boom tends to be risky, since it can lead to unpleasant investment surprises.
How much debt is the REIT carrying? This is an important question for both Canadian REITs and others. You need to gauge the debt in relation to all assets, including those that are hidden and those that appear on its balance sheet. Too much debt in relation to assets can lead to a steeper downturn in distributions when the business hits a snag.
Are there any special factors worth considering? With REITs, you need to look at the quality of tenants, length of leases and the possibility of improving the use or expanding the occupancy of existing properties. That applies to Canadian REITs as much as their region or city of focus.
Is the REIT the subject of a lot of favourable broker and media attention? If so, investor expectations may be excessively high, and that leaves the trust vulnerable to a steep downturn on any hint of bad news.
REIT investing can pay off if approached properly
As mentioned, the best Canadian REITs and others will still do well during an economic slowdown. That often allows them to take advantage of low interest rates to refinance long-term mortgages.
We still advise against overindulging in REITs, including Canadian REITs. But if you stick with high quality trusts, they can make attractive, low-risk additions to your portfolio.
Bonus Tip: Should private REITs be part of your REIT investing strategy?
A private REIT is real estate investment trust that is not publicly traded on a stock exchange, unlike a conventional REIT. That means that private REITs, even private Canadian REITs, calculate the value of their own units and needn’t reveal all the information that’s available with publicly traded investments.
A private real estate investment trust typically portrays this feature as a benefit—since it avoids what it sees as the volatility and speculation of public markets.
But at the same time, private REITs lack the scrutiny from nosy outsiders and analysts who will find out about, and draw attention to, hidden risks and problems that the REIT happens to suffer from.
Overall, we think investors should stay away from private REITs. Instead, stick with publicly traded REITs—and benefit from the full scrutiny of investors and regulators.
This article was first published in 2017 and is regularly updated.
Has investing in REITs been a safer method of real estate investing than others you’ve used?
Precious metal ETFs have largely centred on gold stocks. We continue to see the outlook for that precious metal as positive, and for aggressive investors who want to hold precious metal ETFs, including a silver ETF, we have two of them below.
Most precious-metal stocks dropped, along with stock markets, in March 2020. They then quickly reversed that trend to soar for investors, in part because of gold’s appeal as a “safe harbour” in uncertain times. In fact, in August 2020, gold jumped to over $2,000 U.S. an ounce for the first time ever. Gold stocks also jumped.
More recently, gold has risen on easing inflation and strong expectations any cut in interest rates will also cut demand for the U.S. dollar as a safe harbour. As a result, gold is now benefiting from its traditional role as a safe harbour for investors.
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We also expect gold- and silver-loving markets in Asia to continue their post-pandemic rebound. That should spur gold and silver purchases, taking precious-metal stocks even higher.
We think top gold and silver stocks have much more growth to offer savvy investors. The following ETFs let you tap that growth through top-quality global miners. We see both funds as buys.
ISHARES S&P/TSX GLOBAL GOLD INDEX ETF,is a buy for aggressive investors.The fund(Toronto symbol XGD; buy or sell through brokers; ca.ishares.com)aims to mirror the performance of the S&P/TSX Global Gold Index; it’s made up of 51 gold stocks from Canada and around the world. The ETF began trading on March 23, 2001. It charges investors an acceptable 0.61% MER.
The fund’s top holdings include Newmont, 17.8%; Barrick Gold, 13.0%; Agnico Eagle Mines, 12.3%; Franco-Nevada Corp., 10.4%; Wheaton Precious Metals, 9.3%; Gold Fields Ltd., 5.7%; AngloGold, 3.9%; and Royal Gold, 3.4%.
The ETF cuts risk for investors by focusing on politically stable mining jurisdictions: Canadian firms comprise 63.4% of the fund’s assets, followed by the U.S. (21.7%) and South Africa (11.3%).
ETFs: Here’s what silver investors should consider buying
GLOBAL X SILVER MINERS ETF, is a buy for aggressive investors.The fund (New York symbol SIL; buy or sell through brokers; www.globalxfunds.com) tracks the Solactive Global Silver Miners Index.
Set up in April 2010, the ETF gives you exposure to 32 international firms that mine, refine or explore for silver.
The fund has 65.6% of its assets in Canada. That’s ahead of the U.S. (9.7%), the U.K. (6.8%), Peru (6.5%), South Korea (5.6%) and Mexico (4.9%). Investors in the ETF face an acceptable MER of 0.65%.
The quality of the fund’s top holdings should drive your future gains: Wheaton Precious Metals represents 22.8% of total assets; Pan American Silver, 12.9%; Buenaventura, 9.4%; Korea Zinc, 7.9%; Industrias Penoles, 5.6%; Hecla Mining, 4.1%; First Majestic, 4.1%; and Fresnillo plc, 3.6%.
Recommendation in Canadian Wealth Advisor: iShares S&P/TSX Global Gold Index and Global X Silver Miners ETF are buys.
How attractive are precious metal ETFs as an investment compared to individual gold or silver stocks?
This post was originally published in 2014 and is updated regularly.
The best new stocks to invest in need to have certain characteristics to be good choices for your portfolio. These include a prominent place in an industry, a history of earnings, a history of dividends, involvement in a fast-growing industry and hidden assets
When looking for new stocks to recommend, we look for a number of attractive factors.
These include a prominent place in an industry, a history of earnings, a history of dividends, involvement in a fast-growing industry, hidden assets, the possibility of a takeover bid, and many others.
Lots of investors do the same, although some have a risky tendency to put too much focus on a single factor. For example, they may place a high value on factors such as the involvement of a celebrity investor (Warren Buffett is a top example), or the environmental impact that a company’s products can have if they succeed—solar panels, for example. Others place a lot of weight on favourable comments in the media.
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Don’t focus on any one single factor when you look for new stocks to invest in
It can be a serious and potentially costly mistake to read too much into any single factor (or cluster of factors for that matter). In contrast, we think it’s far better to look at the broader picture. We try to figure out if the company’s business is likely to do well in the immediate business environment, how it might react to a business setback, and how likely it is to prosper in the years and decades ahead.
All in all, most stocks we look at have one or more serious flaws, in our view. If you ask about stocks like these, we’ll tell you to sell.
New stocks to invest in: look for hidden assets
If you buy a stock for its hidden assets, but those assets stay hidden or ignored by investors— or turn out to be less valuable than you thought—it can’t hurt you much. By definition, a stock’s hidden assets have not had much impact on its price. If you paid little if anything for the assets, you have little to lose. But the best hidden assets will eventually expand a company’s profit, grab investor attention, and push up its stock price.
The best time to find hidden assets is when they’re still hidden, long before the company begins taking steps to profit from them. Understanding and seeking out hidden assets while you’re evaluating a stock can add enormously to your profits in the course of an investing career. But you need patience to profit from them, because they can stay hidden for a long time after you buy.
Hidden assets can also cut your risk—and they are a key part of our Successful Investor approach. Stocks with hidden assets are likely to hold up better than those whose assets are easier to spot, since they are the last stocks that experienced, successful investors sell. When times are good, on the other hand, stocks with hidden assets tend to do better than average. Good times give them opportunities to put their hidden assets to work.
New stocks to invest in for emerging market access
High-quality stocks in the global stock market are a good way to diversify your portfolio. Moreover, many emerging markets, like China and India, have strong growth prospects. That’s because their populations is generally younger than North America’s, and more of their people have the potential to advance into the middle class.
Even so, global stock markets remain riskier than investing in North America. That’s because many emerging countries have weak investor-protection laws, language barriers, less commitment to openness, fairness and so on.
Emerging markets are still more volatile and vulnerable to economic downturns than developed nations. However, here are 3 simple ways for Successful Investors to tap into global stock market profits at lower risk:
New York-listed American Depositary Receipts (ADRs)
New stocks to invest in as part of a “buy and hold” portfolio
Of course, there are a variety of ways to build an investment portfolio. Some work better than others. But our “buy and watch closely” approach has done well for our portfolio management clients over the past few decades. We recommend this approach for our readers as well. We start by applying our three-part Successful Investor approach for portfolio construction.
Bonus Tip: Here’s what to do if you have too many of our “holds” in your portfolio.
If you mostly own stocks we see as “holds,” consider selling some of them and replacing them with stocks we see as “buys.” Of course, before you sell, you need to consider any capital gains tax liability that the sale will involve. You’ll need to weigh that tax cost against the benefit that the transaction will bring to your portfolio. You’ll also need to consider the effect that the sale of one stock and buying of another will have on your portfolio. You’ll need to consider how well the revised portfolio lines up with your resources, goals and temperament.
The complications are endless, but the basic rule is simple. When you own good stocks, it generally pays to hold on until you have a good reason to sell. When you own mediocre or speculative or bad stocks, the reverse is true. It generally pays to sell unless you see a good reason to hang on.
Many new stocks that hit the market come with higher levels of risk because they do not have a history of success. How do you factor this into buying new stocks?
What characteristics do you look for in a new stock purchase?
Are stocks with high dividend yields the most prized finds or bad investments in disguise?
Stocks with a high dividend yield, or high dividend paying stocks, are a key part of a successful portfolio—but at the same time, they can give investors a false sense of security. That’s because some investors tend to think that all stocks with high dividend yields, or high dividend growth, are safe. However, dividend payments are not nearly as predictable as bank interest. In fact, investment income like dividends can dry up in a heartbeat. Companies are sometimes unable to honour their commitments, and they sometimes spring the bad news on you with no warning.
At TSI Network, we feel that stocks with high dividend yields can offer you a warning sign—and that requires you to take a very close look at the sustainability of companies’ dividends or at the prospects of the high dividend paying stocks. So, are high dividend stocks safe? When looking for high dividend stocks in Canada, it’s important to consider more than just the yield.
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The biggest risk in stocks with high dividend yield
When looking for high dividend paying stocks, those with high dividend yields or strong dividend growth, you should avoid the temptation of seeking out stocks with the highest yields—simply because they have above-average yields. So, are high dividend stocks safe? It depends.
That’s because a high yield may signal danger rather than a bargain if it reflects widespread investor skepticism that a company can keep paying its current dividend, let alone sustain dividend growth. In short, high dividend paying stocks can come with pitfalls.
Dividend cuts will always undermine investor confidence, and can quickly push down a company’s stock price.
Above all, for a true measure of stability, focus on stocks with a high dividend yield that has been maintained or raised during economic or stock-market downturns. Generally, these firms leave themselves enough room to handle periods of earnings volatility. By continually rewarding investors, and retaining enough cash to finance their businesses, they also provide an attractive mix of safety, income and growth.
Here’s another thing to look at when asking Are high dividend stocks safe? A track record of dividend payments is a strong sign of reliability and an indication that investing in the stock will be profitable for you in the future. High dividend stocks in Canada with consistent payment histories can be attractive options.
Utilities and Canadian Finance are some of the best stocks with high dividend yield
We continue to recommend that you spread your investments out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources; Consumer; Finance; and Utilities). The proportion of your holdings you devote to each sector depends on your temperament and financial goals.
For example, if you’re an income investor seeking dividend growth, you may wish to place more emphasis on 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. However, you’ll still want to make sure your portfolio is well-diversified across most if not all of the sectors. Many high dividend stocks in Canada come from these sectors.
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. Oftentimes, high dividend paying stocks are some of the best of that bunch.
Dividend growth stocks are a welcome bonus—but focus on quality
So, the question still remains: are high dividend stocks safe? As with conservative dividend-paying stocks, dividend growth stocks offer investors a measure of security. 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 doesn’t mean that high dividend paying stocks can’t fail.
Therefore, it’s important to avoid judging a company based on the fact that it pays a dividend, or solely on past periods of dividend growth. Nor should you be tempted solely by a high dividend yield (the percentage you get when you divide a company’s current yearly payment by its share price).
That’s because—as we mentioned earlier—a high yield can sometimes be a danger sign rather than a bargain. For example, a dividend stock’s yield could be high simply because its share price has dropped sharply (since you use a company’s share price to calculate yield). That drop may signal investor anticipation of coming bad news.
As well, you should always remember that while growth stocks hold the potential for greater gains than conservative selections, they typically expose you to a higher level of risk—even if they are dividend-paying stocks.
That’s why we look beyond high dividend paying stocks and dividend yields when making investment recommendations, and look for dividend stocks that have established a business and have at least some history of building revenue and cash flow. That makes it easier to answer the question, are high dividend stocks safe?
Bonus Tip: Canadian blue chips are among the best high-paying dividend stocks
A company with a long-term record of paying dividends is generally one that is most deserving of the “blue chip” label in its traditional sense. 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 regardless of whether investors opt for stocks with a high dividend yield or high dividend growth, picking well-established, dividend-paying stocks benefits most investors. Those 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 that meet our Successful Investor criteria offer both capital-gains growth potential and regular income. In fact, dividends are still likely to be paid regardless of how quickly the price of the underlying stock rises.
What’s more, dividends from Canadian companies may come with a tax credit. This cuts your effective tax rate.
All in all, it’s realistic dividends from blue chip companies will continue to contribute around a third of your total return. That only increases the appeal of good high dividend paying stocks.
In summary, hen evaluating high dividend stocks in Canada, investors should look beyond just the dividend yield. While a high yield can be attractive, it’s important to assess the sustainability and reliability of the dividend by examining the company’s fundamentals, payment history, and sector. Canadian blue chip stocks in sectors like utilities and finance often make strong high dividend picks. Diversifying across sectors helps manage risk. Dividend growth is a positive trait, but the quality and stability of the underlying business matters most. By focusing on well-established companies with solid financials, investors can improve their odds of finding safe and rewarding high dividend stocks in Canada. Dividends from Canadian companies may also provide tax advantages. In summary, high yields shouldn’t be the only criteria – a holistic evaluation is crucial for identifying the best high dividend opportunities.
Do you seek stocks with high dividend yield? Have you added these investments to your portfolio? Please share your story with us.
This article was originally published in 2016 and is regularly updated.
Forget relying on a market timing strategy to boost returns. Focus instead on these proven tips for successful investing.
Market timing is the practice of trying to predict future trends and turning points in stock prices. For most people, this is a wasted, if not harmful, effort.
Random events tend to occur in bunches. A market timing strategy generates a lot of random buy and sell signals. Some are bound to work out well. But few work out well enough to offset losses on the inevitable erroneous signals, and leave a decent profit leftover.
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Why successful investors stay away from a market timing strategy
The practice of market timing consists of coming up with and acting on a series of guesses (or estimates, or probability assessments) to use in your buying and selling decisions. Market timing theory attempts to interpret and detect buy and sell signals in trading patterns and history. Some of the decisions you make with the help of market timing will bring you profits, and others will cost you money.
Market timing can pay off sporadically, of course. Although the results are largely random, successes and failures are apt to come in spurts. The worst thing that can happen to you near the start of an investing career is that you make a series of successful timing decisions. This may lead you to believe that you have a natural talent for market timing, or that you’ve stumbled on a timing process that’s a guaranteed money-maker. Either of these conclusions can spur you to back your future timing decisions with growing amounts of money.
A significant market setback of, say, 10% or more will come along eventually. Unfortunately, no one can consistently say when that will be. Trying to foresee setbacks is sure to cost you money, however. That’s because many of the setbacks you foresee won’t occur. If you act on your prediction and sell, you’ll miss out on profits. You may buy back in at higher prices, just in time to be in the market when the next setback does occur. That’s known as a “double whipsaw.”
Eventually it happens to a lot of market timers. Some react by giving up on market timing. Others just give up on investing.
The best market timing strategy I can offer is to buy steadily and carefully throughout your working years, and sell gradually in retirement. That approach is virtually certain to enhance your investing profits. For one thing, it stops you from selling all your stocks near a market bottom, which market timers do from time to time.
How to be a successful investor without using a market timing strategy
Instead of trying to master market timing, you are far better off to study the earmarks of successful investments. Your long-term investment results will improve a great deal if you simply learn to spot and recognize these earmarks, and understand how they differ from the common risk factors in unsuccessful investments.
Here’s a look at some ways to make better investments.
Dividends: A history of steady if not rising dividends is one of those key earmarks that successful investors use to distinguish good stocks from bad.
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. Dividends are cash outlays that an unsuccessful company could never produce. A sustained history of dividend payments is one thing that all the best dividend stocks have in common.
We look for dividend stocks that have industry prominence, if not dominance. Our reasoning, besides brand recognition, is that major companies can influence legislation, industry trends, etc., to suit themselves.
Spinoffs: We can still say without reservation that, in investing, spinoffs are the closest thing you can find to a sure thing.
When a company carries out a spinoff, it sets up one of its subsidiaries or divisions as a separate firm, then hands out shares in the new company to its own shareholders. It may hand out the shares as a special dividend or give its investors an opportunity to swap shares of the parent company for the shares of the newly established spinoff.
Study after study has shown that after an initial adjustment period of a few months, spinoffs tend to outperform groups of comparable stocks for several years. (For that matter, the parent companies also tend to outperform comparable firms for several years after a spinoff.)
Conservative investing: In our view, your goal as investor, particularly if you follow a conservative investing strategy like the one we recommend, is to make an attractive return on your investments over a period of years or decades. Failure means making bad investments that leave you with meagre profits or losses.
Our advice is that the best way to try to outperform is to apply our Successful Investor philosophy: invest mainly in well-established companies; spread your money out across most if not all of the five main economic sectors (Manufacturing, Resources, Consumer, Finance and Utilities); and downplay or avoid stocks in the broker/media limelight, where unpleasant surprises can lead to big declines. But applying these principles to buying stocks requires a good deal of judgment and attention. Even then, you won’t beat the market every year.
Have you ever used a market timing strategy successfully? When?
Investing in copper stocks works best for you when the focus is on well-established mining companies with high-quality reserves and sound finances
To succeed while investing in copper stocks, we continue to recommend that you cut your risk in the often-volatile resource sector—including copper—by investing mainly in profitable, well-established mining companies with high-quality reserves.
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Use caution when investing in copper stocks, and you could enjoy long-term gains
Many industrial uses of copper can give copper stocks an advantage over gold and other precious metal stocks.
Traditionally, investors have bought copper stocks as a way to profit from general economic growth. Copper has a wide range of industrial uses (unlike gold and silver, which are thought of more as hedges against inflation). Copper is heavily used in the power-transmission and construction industries, in cables, wires and plumbing.
Stocks of firms that produce base metals, including copper, generally have higher dividend yields than gold stocks. As well, they’re usually much cheaper than gold stocks in relation to their earnings and cash flow. That means they potentially have less room to fall if markets fall. That’s just another way of saying they can be considered somewhat less risky than gold and other precious metals.
Copper should benefit not just from rising demand, but also from tightening supply. In the short term, labour problems and technical delays will continue to slow global copper production.
Over the longer term, ore grades are also falling at many major mines around the world as producers use up the easy-to-mine ore zones in their copper deposits. Environmental issues are also making it harder for companies to acquire permits for new mines.
To sum up, we like copper’s long-term prospects. But as always, stay out of promotional penny mines that are merely drilling for copper. Also stay out of investment vehicles (like options or futures) that will only make money for you if copper keeps going up in the short term.
All in all, most investor portfolios can include exposure to the Resources and Commodities sector of the economy, and that includes copper stocks. At the same time, though, resource stocks (and this includes oil and gas, of course) should in general make up only a limited portion of your portfolio.
Increase your profits from investing in copper stocks by choosing the right companies. Here are some tips:
Mining stocks can generally be broken up into two categories, majors and juniors. Majors are mining companies that have been in the mining business for many years and more often than not they operate on a global scale. Majors have proven methods for exploration and mining, and have consistent output year over year.
When we research a junior mining stock to recommend in our investment services and newsletters, we like to see a mine-finding effort that focuses on high geological probabilities and doesn’t simply attempt to piggyback on the popularity of areas that are in the limelight because of a recent rich find.
It is sometimes said that a single drill hole has a 1-in-1,000 chance of turning up an “anomaly,” or a drill result that could be a marker for a mineral deposit. However, the odds against finding a mine on any one anomaly are also about 1,000-to-1. So, the odds that a particular drill hole will lead to the discovery of a valuable deposit are about a million-to-one. That’s why we never recommend juniors that have much or all of their value riding on a single drill hole. Instead, we want to see a series of promising drilling results, along with other encouraging development work.
Buying junior-mining stocks is risky. It can pay off extremely well when it succeeds, of course. But, in addition to the geological odds lined up against success, it’s much easier to launch and promote a junior-mining stock than it is to find a mineable deposit.
That’s why junior mining stocks are so common, even though profitable mines are rare. It’s also why many juniors fail, and why they should make up only a very small part of your portfolio.
With junior mining stocks, it’s very easy for speculative stocks with few real assets or very early-stage assets to trade at very high levels only to come crashing down once the crowd moves onto the next big thing.
It’s also best to avoid stocks trading at unsustainably high levels as a result of investor mania or broker hype. Penny stocks are susceptible to extreme highs and lows that can be influenced by such things as a major investor selling their stock (which could easily destabilize the financing of the company). They can also be dramatically influenced by a positive news report (which, in the case of penny stocks, could send the price soaring, but for all the wrong reasons).
Use our three-part Successful Investor philosophy to profit when investing in stocks—including investing in copper stocks:
Invest mainly in well-established, mostly dividend-paying companies;
Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities);
Avoid or downplay stocks in the broker/media limelight.
Some economists look at copper demand as a faithful indicator of consumer sentiment. What are your thoughts, especially considering the economic growth expected long term?
This article was originally published in December 2021 and is regularly updated.
Aggressive and conservative investors alike must assess a range of the risks when they consider how much to invest in stocks for their investment portfolios
Smart investors balance aggressive and conservative investments in their portfolio, in line with their investment objectives, and the market outlook. Above all, they avoid the urge to become more aggressive as prices rise and more conservative as prices fall.
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How much to invest in stocks for the aggressive segment of your portfolio
Aggressive stocks typically don’t have a secure hold on a growing market or at least the stable clientele that conservative companies have. When something goes wrong with aggressive investments, there is great risk of serious, if not total, loss.
When we single out our aggressive favourites, we try to choose those with as much underlying value and as many hidden assets as possible. This is the best way, for both conservative and aggressive investors alike, to cut risk with those stocks.
Our stock selections for the aggressive investor tend to be more volatile than our conservative recommendations, and they can give you bigger gains and bigger losses. This may be due to financial leverage, or to the risk in their industry or particular situation. Keep in mind that these or any aggressive investments should make up only a smaller part of most Successful Investor portfolios.
If you want to diversify your portfolio with aggressive stocks, first you should understand the chances you take. They’re only suitable for investors who can accept a greater degree of risk. You can be wrong on any of your stock picks, of course. But when you’re wrong on an aggressive stock, losses are likely to be larger than with a well-established company.
Zeroing in on a handful of small to medium-sized companies can pay off nicely when it works, but it can be extremely costly when you pick too few winners and/or too many duds.
But that doesn’t mean you should avoid aggressive stocks altogether. As mentioned earlier, we recommend limiting your aggressive holdings to a smaller part of your overall portfolio. This is because aggressive stocks expose you to a greater risk of loss.
Ultimately, the percentage of your portfolio that you should hold in either conservative or aggressive investments depends on your personal circumstances and risk tolerance. An investor with a longer time horizon or without the need for current income from a portfolio can invest more money in aggressive stocks.
How much to invest in stocks on the conservative end of the spectrum
A conservative investor holds a group of stocks with the goal of achieving steady returns, including dividends, while maintaining a lower level of risk.
Conservative investing is an investment strategy that involves a focus on lower-risk, predictable and stable businesses. This strategy typically involves the purchase of blue-chip stocks and other low-risk investments. A conservative Successful Investor approach also means building a well-balanced portfolio gradually, over time. The number of stocks in your portfolio will depend on where you are in your investing career.
Our Successful Investor philosophy recommends creating a diversified conservative portfolio of mainly high-quality, dividend-paying stocks spread out across most if not all of the five main economic sectors. Over time you’ll still experience a wide variation in results among your holdings, but you’ll find that at the worst of times, you won’t lose much by holding a portfolio answering that description. When times are good, this kind of portfolio will pay off nicely. By diversifying across the sectors, 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.
Lower-risk investments equate to safer investments. For conservative investing, focus on investing in high-quality stocks that offer hidden value.
How much to invest in stocks: Apply our 5% to 10% rule
Every case is different, because each individual has different investment objectives, acceptable risk levels and so on. But you should generally hold on to high-quality stocks, even if they have jumped in price.
In investing for our clients, we rarely put much more than 5% of a portfolio into any one stock.
As well, in general, we advise against buying more of a stock if it already makes up more than 5% of your portfolio. But if a stock does so well that it comes to represent, say, 8% to 10% of a client’s portfolio, we at least consider selling part of it, to cut the risk. However, every case is different.
You also need to consider your diversification across the five main economic sectors. For example, if your exposure to the more-volatile Resources sector now exceeds 30%, for example, then you may want to sell some of your Resource holdings to cut risk.
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