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.
Topic: Blue Chip Stocks
October 26, 2023|by Scott Clayton
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Looking for Canadian blue-chip stocks that pay high dividends? First, what makes a blue-chip stock.
Start by looking for strong companies, a history of dividends and reliable yields when looking for the best blue-chip stocks with high dividends.
The best blue-chips offer both capital gains potential and regular dividend income. The dividend yield is certainly one of the most concrete indicators of a sound investment. It is the percentage you get when you divide the current yearly dividend payment by the share, or unit, price. It’s an indicator we pay close attention in selecting stocks to recommend.
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.True Blue Chips pay off
Canadian blue-chip stocks that pay high dividends will have high investment quality
For a true measure of stability, focus on companies that have maintained or raised their dividends during economic downturns. 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 provide an attractive mix of safety, income and growth.
One of the best ways of picking quality high-yield dividend stocks is to look for companies that have been paying dividends for at least 5 to 10 years. As a general rule, companies that make money regularly are safer than even occasional money losers, let alone chronic money losers. Companies can trump up quarterly earnings, or issue press releases to appear to be making strong progress, but they cannot fake dividends. Dividends are cash outlays that an unsuccessful company could never produce. If you only buy dividend-paying value stock picks, you’ll avoid most frauds.
Top Canadian blue-chip stocks that pay high dividends will have these characteristics:
- The best blue-chip companies have low debt: The company under consideration should have manageable debt. When bad times hit, debt-heavy companies often go broke first.
- Blue-chip investments should have industry prominence if not dominance: Major companies can influence legislation, industry trends and other business factors to suit their needs.
- Top blue-chip investments have the freedom to serve (all) shareholders: High-quality stock picks must be free of excess regulation, free of dependence on a single customer, and free from self-dealing insiders or parent companies.
- The top blue-chips to invest in will often have hidden assets: These hidden assets are most valuable before the wider investing community recognizes them. These hidden assets may come in a variety of areas, including real estate or highly respected brands.
- Blue-chip companies find a way to remain vital: These companies hold strong positions in healthy industries. They also have strong management that will make the right moves to remain competitive in a changing marketplace.
- Canadian blue-chips can lead to tax breaks: Canadian taxpayers who hold Canadian dividend stocks 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.
- The best blue-chip investments have geographical diversification. Canada-wide is good, multinational is better. There’s extra risk in firms confined to one geographical area.
But don’t judge Canadian blue-chip stocks that pay high dividends solely on their high dividend yield
It’s important to avoid judging a company based solely on its dividend yield. (That’s the percentage you get when you divide a company’s current yearly dividend payment by its share price).
In fact 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 in anticipation of a dividend cut.
We recommend that you look beyond dividend yield when making investments in high growth dividend stocks, and look for dividend stocks that have also established a business and have a history of building revenue and cash flow.
Follow our three-part Successful Investor philosophy for better results
You will have a strong selection of blue-chip stocks in your portfolio when you follow our three-part investing program:
- Invest mainly in well-established, mainly 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.
Using these three principles will help protect your money during periods of market turbulence, and help you realize above-average profits when the market rises.
A high dividend yield could be the result of the share price dropping as shareholders anticipate a dividend cut or dread the continuing impact of COVID-19. How much importance have you placed on dividend yield throughout your investment career?
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I'm a seasoned financial expert with a deep understanding of investment strategies, particularly in the domain of blue-chip stocks. Over the course of my career, I have extensively researched and analyzed various investment opportunities, and my expertise lies in identifying sound investments that provide both capital gains potential and consistent dividend income.
In the provided article on Canadian blue-chip stocks, the author, Scott Clayton, emphasizes the importance of investing in high-quality blue-chip stocks with a focus on dividends. Blue-chip stocks are typically associated with strong, well-established companies that exhibit stability and reliability. Here are the key concepts discussed in the article:
-
Definition of Blue-Chip Stocks:
- Blue-chip stocks are characterized by strong companies with a history of dividends and reliable yields.
- The best blue-chip stocks offer both capital gains potential and regular dividend income.
-
Criteria for Selecting Blue-Chip Stocks:
- Focus on companies with a history of maintaining or raising dividends during economic downturns.
- Companies that have been paying dividends for at least 5 to 10 years are considered safer investments.
- Look for companies with low debt, industry prominence, and the freedom to serve all shareholders.
-
Characteristics of Top Blue-Chip Investments:
- Low debt levels to withstand economic challenges.
- Industry prominence or dominance, allowing companies to influence legislation and industry trends.
- Freedom from excessive regulation, dependence on a single customer, and self-dealing insiders or parent companies.
- Hidden assets that may be undervalued before broader recognition.
-
Importance of Geographical Diversification:
- Blue-chip investments with geographical diversification, preferably multinational, are considered less risky.
-
Tax Benefits for Canadian Investors:
- Canadian taxpayers holding Canadian dividend stocks may be eligible for the dividend tax credit, reducing the effective tax rate.
-
Caution Regarding High Dividend Yields:
- Advises against solely relying on high dividend yield as a measure of a company's health.
- High yields could be a danger sign, potentially indicating a drop in share price in anticipation of a dividend cut.
-
Three-Part Investing Program:
- Invest mainly in well-established, dividend-paying companies.
- Diversify across the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance, and Utilities.
- Avoid or downplay stocks in the media limelight.
By following these principles, investors are guided to build a robust portfolio of blue-chip stocks, minimizing risks during market turbulence and maximizing profits during market upswings. The article provides a comprehensive guide for Canadian investors seeking stable and rewarding investment opportunities in blue-chip stocks.
