How To Invest In Canadian Dividend Stocks

There are two ways to make money with stocks:

  1. Appreciation (the difference between the purchase price and the sale price). Otherwise known as capital gains.
  2. Dividends (regular cash payments the company sends you a check for or which get deposited into your brokerage account).

Most investors seem to focus exclusively on speculative gains (the appreciation), going so far as ignoring dividend payments when reporting stock market results over long periods of time.

Dividends (even just considering a Canadian context) is WAY too large a topic for a single blog post, so I’ll apologize in advance for a (necessarily) shallow treatment.

New to online investing? Learn how to buy an ETF or stock using a discount brokerage – step by step instructions.

What Dividends Say About a Company

There’s some dispute about whether it’s a good thing or not if a company pays a dividend.  The argument against it is that the company can retain the earnings that would have been paid out to shareholders and grow the company in a more efficient manner.  Say a company pays out $1 million a year in dividends.  They could use this money instead to expand their sales force, increase the production capacity of their factory, acquire a small company in a related industry or increase their advertising (and hopefully future sales).  Advocates of this policy feel, given a good company, reinvesting the earnings is a better investment than anything else they could do with the money.  Berkshire Hathaway, Warren Buffett’s holding company, has never paid a dividend and Microsoft just recently started paying a small dividend (until now they’ve reinvested in explosive growth).

The counter-perspective is that dividends are cold hard cash and a company’s ability to continually pay them provides concrete evidence that the company is performing well.  Accounting malfeasance  (such as Bernie Madoff) is harder, or impossible, if a large transfer of cash is going to shareholders on a regular basis.  Further, dividend investors may feel that THEY are able to better reinvest the earnings then the company that paid them (perhaps in another company they feel is undervalued, or in another investment category like real estate or some commodity).

Examples of Canadian dividend stocks

Each of the big 6 Canadian banks is a Canadian dividend stock, as are many of the Canadian companies you’ve heard the name of (such as Loblaws, Shoppers Drug Mart, or Tim Hortons).  Personally, all stocks I own are dividend payers and in addition to the US companies General Electric and Bank of America, the Canadian dividend stocks I own are:

  • Bank of Montreal
  • National Bank
  • Russel Metals
  • Bank of Nova Scotia
  • Telus
  • Fortis
  • Imperial Oil
  • Transcanada Corporation
  • CIBC

In “The Lazy Investor”, Derek Foster recommends a portfolio made up of:  Scotiabank, Enbridge, Imperial Oil, Fortis, and Riocan REIT.  

If you come across the term DRiP while reading about dividends, it refers to a dividend reinvestment plan (which is a topic for another day).  MoneyEnergy has a VERY, VERY good series of posts on DRiPs (on the right side of her page, halfway down).

An excellent list of dividend paying Canadian companies is maintained at the Canadian DRIP & SPP List.  The Claymore S&P/TSX Canadian Dividend ETF provides a list of strong Canadian dividend stocks.  As an ETF, it’s an low-fee way to invest in a diversified collection of Canadian dividend companies (if that’s your bag, baby).

Tax Treatment

Dividends paid by Canadian  companies get a favourable tax treatment.  This certainly improves their returns for Canadians!

Canadian Dividend Investors

Tom Connolly publishes an great newsletter focused on investing in Canadian dividend companies.  While his newsletter is closed to new subscribers, there is an archive of past issues at the North York Public Library and he maintains some freely available information at his website.

While he can be a controversial figure in the Canadian investing scene, Derek Foster has published 4 books which I feel are worthwhile reading for a beginner interested in dividend investing.


17 replies on “How To Invest In Canadian Dividend Stocks”

Nice article about dividends. I have been purchasing dividend stocks for several years now. However, high current prices make it tough to find attractively valued stocks.

I like your list of dividend bloggers but I find it weird that you did not mention dividend growth investor, but you mentioned living off dividends which is now dedicated to gold investing; dividend money has actually been a dead blog for almost a year now, with the author simply republishing old articles…

Thank you for the DRIP list. It is perfect for me because I support the DRIP theory. I only have one Canadian stock and that’s an oil royalty trust, PWE which paid out handsomely until the government announced a tax law change.

However, I bought my shares at a low price so I am not too concerned with it. I do pay foreign tax on my dividends from PWE but that’s okay by me. The way the stock market has treated oil producers and the price of oil outweighs the risk of investing in it because PWE has a good sound strategy in place. I am looking forward to reading more from you about Canada stocks.

Nice round up, here. Thanks for the kind mention on the DRIPs resource. I’m an avid and old-time DRIP investor, so if any has any questions come on over or reach me on Twitter (@MoneyEnergy).

We are having an AGM in two weeks to determine a dividend payment. I could possibly see up to $50,000 if the max dividend talked about is paid. We were told to create a numbered company in Barbados to avoid paying Canadian taxes….17% versus 3%. Is this legal? Do I need

Treasury bonds are better options than investment in any stock because dividend is not fixed as per year earnings. I am a retired navy officer and now looking for any opportunity to invest in transportation through buildtruewealth based strategies. According to my experience and collected information, transportation is the second most revenue generated business in any country.

I recently did a backtest for the top 6 canadian banks, starting in sept/02 till today with divvy’s reinvested. I put a total of $180,000, 30,000 into each bank. Today, that would be worth, $1,245, 782.00. In real life i did invest that amount at that, with a broker, and today it is worth 390,000.That’s a big differance. I am thinking putting that 390,000 into those banks….and let it ride………any comments would be appreciated………Thanks……….

Thank you for the info! If I purchase dividend stock through Itrade, how do I enrol them in the DRiP? I currently have a BNS stock I purchased through a forum, received in paper form, and enrolled through Computershare. How does it work when I purchase through a discount brokerage? Thanks in advance!

hi to start with I’m old don’t have much money to invest. I want something for later/now. where to start ?

Great post,
I have just started doing the homework for direct investing. Interested in doing trade from TFSA TD direct trading account. Can we buy all kinds of investment (with dividend earning) from that account, and also will the dividend be taxable irrelevant of reinvested or not.

Good post! But there is a problem with dividend paying companies. Since they pay that money from the earnings and that money could have been otherwise invested back into the company, the growth of company becomes affected. So there is a mostly a trade off between dividend payments and growth. The relation may not always be direct but is a significant one.

No need to convince me about the Canadian dividend stocks. I have a decent amount invested in TD, BNS and RY and would like to add to other Canadian banks perhaps someday. I hold all the Canadian banks in my ROTH therefore do not have any withholding taxes. Thanks for sharing.

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