Admit it, you want it all. You want the steady income that dividend-paying stocks provide and market-beating returns to boot. Sound unrealistic? It’s not.
According to a study by RBC, between 1986 and 2012, dividend-paying stocks returned 10.3% versus just 6.5% from the broader market. That incredible out-performance means the difference between turning a $100,000 portfolio into $1.3 million versus just $514,000.
Why do income stocks trounce the market? Dividends are only paid in cash. So, when you buy a dividend-paying stock, you can be confident that the company is actually making money. That may sound simplistic, but many firms report accounting profits without actually banking any cash flow.
That’s why if you’re just getting started in investing, you could do worse than double down on dividends. Of course, shifting through hundreds of companies can be a challenge for a beginner. So, to help get you started, here are three of my favourite income stocks.
1. Fortis Inc
Not every hockey player is as good as Sidney Crosby, and not every dividend stock is as good as Fortis Inc (TSX:FTS).
This firm is in a special group of stocks called the “Dividend Aristocrats,” and any old company can’t just get into this club. No, these dividend masters have followed a policy of increasing their payout every year for at least five consecutive years. Fortis is the longest standing member on this list, with 42-straight years of dividend hikes.
Impressed? You should be. Because when a company has a 40-plus year streak of paying and raising its dividend, you have a great chance of growing your money over time.
2. Imperial Oil Limited
In a sense, Imperial Oil Limited’s (TSX:IMO)(NYSE:IMO) business isn’t all that remarkable. The company’s products—oil and natural gas—are just commodities. For the most part, the crude Imperial hauls out of the ground is the same as the oil that, say, Suncor produces.
So, how does Imperial standout? It has a long history of investing in technology to keep it at the forefront of the industry. The company’s sheer size also gives it the scale needed to tackle the toughest energy challenges.
It’s this combination that has allowed Imperial to pay out one of the longest streaks of consecutive dividends in the country. The company hasn’t skipped a payment to shareholders since 1891. I don’t expect that tradition to end anytime soon.
3. Telus Corporation
Even Abraham Maslow would agree that cell phones are necessities nowadays. As smartphones become an ever more important part of our lives, service providers like Telus Corporation (TSX:T)(NYSE:TU) will stay in demand. That’s why this company is one of the most reliable dividend payers around.
But it’s also one of the most predictable. Last year, executives pledged to raise the company’s dividend twice a year through 2016 at an annual rate of about 10%.
Of course, you can’t bank those dividend hikes just yet. Payout increases will depend on the company’s cash flow and still need to be approved by the board. But management would not have raised investors’ hopes unless they were confident they could deliver.
