Starting a dividend portfolio is not easy these days, especially in Canada. Because interest rates are so low, solid dividend stocks are in high demand, driving their yields down. Meanwhile, high-yielding stocks have fallen on hard times, with dividend cuts being announced left and right. Most of these are happening in the energy sector.
So, where should a dividend investor be looking these days? Well, below we take a look at the top three places.
1. The telecoms
Let’s start with the obvious. Canada’s big three telecommunications providers have everything that dividend investors should be looking for: limited competition, high-barriers to entry, and subscription-based revenue. Needless to say, all of them have very stable dividends.
Two are worth highlighting in particular. One is BCE Inc. (TSX:BCE)(NYSE:BCE), simply because it pays out practically all its earnings to shareholders. As a result, the stock yields a juicy 4.8%. If you want a yield higher than that, you’ll need to buy a much riskier stock.
The other is Telus Corporation (TSX:T)(NYSE:TU). Telus is easily the best-in-class player in the industry. The company is liked by its customers, it’s stealing market share, and it’s growing revenue faster than its rivals. Unfortunately, its dividend yields only 3.8%, but this is a dividend that’s quadrupled in the last decade.
2. The banks
I know what you’re thinking: Are banks really a place to find reliable dividends? Well, in Canada the answer is yes. Remember, none of our banks cut their payouts during the financial crisis, a time when numerous banks around the world were going bust.
And if you’re going to buy a bank, why not go with the biggest one, Royal Bank of Canada (TSX:RY)(NYSE:RY)? The company yields a healthy 4%, despite paying out less than half of income to shareholders. Better yet, the bank has one of the best track records in Canada, and its size is a big advantage in today’s banking environment.
3. The REITs
Many investors, when looking to generate some income from their savings, opt to buy rental properties. Unfortunately, this comes with a bunch of hassles and expenses. Real Estate Investment Trusts (REITs) allow savers to invest in real estate securities without all of these nuisances.
One in particular worth mentioning is H&R Real Estate Investment Trust (TSX:HR.UN), which owns a collection of retail, commercial, and industrial properties. So, it comes with a bit of diversification. It also comes with a yield of more than 5%, something that should be appealing to dividend investors.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Benjamin Sinclair has no position in any stocks mentioned.