One of the ways that you can boost your return over time is to invest in dividend stocks. Canadian dividend stocks offer you a chance to earn a little extra money from your investments, and you might even get a good value that results in capital appreciation.
What are Canadian Dividend Stocks?
Dividend stocks are those that pay out a portion of profits regularly. When a company has profits, there is the option to pay some of those out to shareholders. This is an extra payment that comes on top of any capital appreciation that the stock might have.
In many cases, the payout is made on a quarterly basis. Canadian dividend stocks offer their payouts based on the number of shares you hold. So, if a company says that it will pay out $0.25 per share each quarter, that amount is multiplied by the number of shares you have. If you have 200 shares of the company's stock you will receive $50 every quarter. This is money that you can use as income, or that you can reinvest.
Many Canadian companies will allow you to automatically reinvest your dividends. This helps you boost the number of share you have in your portfolio, without the need for you to actively purchase more shares. If the company's shares are priced at $75 per share, and you receive a payout of $50, you will receive 2/3 of a share to add to your portfolio. One of the advantages to this system is that your portfolio grows with what amounts to “free” money. You have more shares, so the next time the company pays dividends, your payout is bigger, since it is based on your new, higher number of shares. If you continue to automatically reinvest your dividends, you could see your portfolio grow faster.
It's important to understand that a dividend isn't guaranteed. Companies can cut their dividends (or get rid of them altogether) so you aren't sure that you will always receive the dividend. But choosing your Canadian dividend stocks carefully can improve the chances that you will end up receiving payouts for years to come.
Canadian Dividend Aristocrats
If you want to increase the chances that the dividend stocks you choose are likely to pay out consistently, you might consider the dividend aristocrats. To make this list, a Canadian company must have increased its dividend payout for five consecutive years to make the cut.
With these Canadian dividend stocks, you can see that a company is likely to continue making dividend payout increases. Another thing to keep in mind is that there is a good chance that these are companies that have solid growth prospects, and have solid balance sheets. You can't consistently pay out a portion of your profits to shareholders in the form of dividends if your company doesn't have solid fundamentals.
Some companies will boost dividends in an attempt to attract investors, but sometimes these efforts disguise the troubles that might be afflicting a company. While it might be exciting for a short time to get that high yield, the reality is that it might not be sustainable, and a cut could come. Plus, you might end up in a position in which a faltering company's stock value plunges, leading to capital losses.
When use properly in a portfolio, Canadian dividend stocks can provide you with a little extra income, and better returns. On top of that, the right companies can also provide you with capital appreciation. Dividends enjoy favorable treatment as well, so they are more tax efficient than other investments.
Keep all of this in mind, and you can create a solid portfolio that includes Canadian dividend stocks.