Lot’s of newbie investors want to get into Canadian Dividend Investing, but don’t really know where to start. If you want to learn about the benefits of dividend investing, see my post on it here. In this post I’ll discuss some of Canada’s best Dividend Stocks and tell you how you can start investing in them.
Unlike the US stock market, Canada’s Toronto Stock Exchange is not well diversified at all. Just 3 sectors make up nearly the entire index: Financials, Energy and Mining. So this makes picking a diversified portfolio tricky. Below are some Canadian dividend stocks that I invest in. To balance out my Canadian focus, I also invest in a US S&P 500 index fund in addition to owning some US dividend stocks like Procter and Gamble (PG).
Why Start a Canadian Dividend Stock Portfolio?
Most Canadians choose to stay at home when it comes to investing which can be risky. There’s always a danger that you’ll be too concentrated in one sector. At the same time, however, Canada has some amazingly profitable companies that have made investors rich over time. I’m thinking of Canada’s Big 5 banks here.
Another reason has to do with taxes. If you own US or foreign dividend stocks outside of an RRSP, there will be a foreign withholding tax and all of the foreign dividends are fully taxable. But if you own Canadian Dividend Stocks outside of a TFSA or RRSP, you will be taxed at a reduced rate because Canada’s taxation system favors Canadian dividends.
Finally, Canadians choose to invest in Canada is because they’re familiar with the companies that they’re investing in. Most Canadians recognize a Royal Bank or Bell Canada (BCE), but not so much a Citigroup or Verizon. So it makes sense that they would invest in what they know.
The Best Canadian Dividend Stocks
Any one of the Big 5 Canadian Banks is a solid long term investment in my opinion. I own all 5 and have been investing in this group for over 10 years. They constantly raise their dividends and their share prices increase at a good pace over time. While no stock is 100% safe, these Big 5 Banks have been around for nearly 200 years. Over that time they continued to pay and increase their dividends through world wars, a Great Depression, countless recessions, a Cold War, housing booms and busts etc. Their resilience and profitability is what earns them a solid place as a core holding in every Canadian Dividend Stock portfolio.
Canadian Banks are interesting because they all seem to have their own unique differences:
Royal Bank (RY) – is the largest bank in Canada by market cap and has a strong wealth management business.
TD Bank (TD) – is more US focused than the others; approximately 40% or their business is in the US.
Bank of Nova Scotia (BNS) – More internationally focused. They have a strong Canadian business and own Tangerine Bank. They have operations throughout Central and South America, so they are well positioned to play the emerging market trend.
Bank of Montreal (BMO) – Besides its Canadian operations, BMO has a presence in the US mid-west through Harris Bank.
CIBC (CM) – More Canadian focused than the rest, although they recently entered the US market with the purchase of Private Bancorp.
The next group to consider would be the Big Telcos. Companies like BCE (BCE), Telus (T) and Rogers (RCI) dominate this sector. They all pay solid dividends in the 4-5% range. Despite stiff competition in this space, all 3 provide essential services (phone and internet) that Canadians use every day.
Utilities and Pipelines are another great spot for Canadian Dividend Investors. Utility companies like Fortis (FTS) and Canadian Utilities (CU) are among the rare group of companies that have raised their dividend each and every year…for over 40 years! I fully expect that trend to continue as our energy base shifts from one dominated by fossil fuels to one dominated by electricity.
Pipeline companies like TransCanada Corp (TRP) and Enbridge (ENB) are solid dividend payers too. Their businesses are a mix of oil and natural gas pipelines and electric utilities. While their oil transportation business may slowly die off over the next 40 or 50 years, their natural gas business will probably fill that void as society transitions to more cleaner energy.
A solid dividend stock to own in the transportation space is Canadian National Railway (CNR). While the yield isn’t as generous as the other companies mentioned here, they have been a solid dividend grower for 20 years and the stock price has soared over that time as well. Again this is a solid dividend stock to own that has incredible assets across North America.
How to Buy Canadian Dividend Stocks
There are 2 ways to get into Canadian dividend investing: buy stocks through a dividend reinvestment plan DRIP, or open a discount brokerage account either through Questrade or a big bank. I use both for my stock purchases. If you want to own Canadian dividend stocks in a tax-sheltered account like an RRSP or TFSA, then the way to go is by using a discount broker like Questrade.
If you can only afford a $100 a month, then you may want to consider using the DRIP approach. Once your account balance is large enough you could then move the shares to a TFSA or RRSP.
Canadian Dividend Investing is a Winning Strategy
I’ve used both types of investing accounts and strategies mentioned and it’s worked out well for me. For some results check out my dividend income and net worth reports. Of course, if you want to follow a Canadian dividend investing approach, then you need to think long term because all stocks carry a certain amount of risk.
Stock markets will continue to rise and fall. Sometimes we may get a nasty correction where share prices fall by more than 20%. Unfortunately, no one is good at predicting when these things will happen so the best approach is to choose your dividend stock investments wisely and no matter what happens, NEVER sell your stocks if the markets crash. They will recover over time and if you keep investing in the bad times, it will make the eventual recovery that much more profitable for you.
Thanks for reading this post on Canadian Dividend Investing.