Dividend investing is a popular way to invest. One reason is because it’s simple and easy. You buy shares in dividend companies and periodically receive paychecks in your account from them.
New investors probably want to start with companies that have stable earnings. Well, companies that have a long history of paying dividends must be pretty stable.
One good thing that came out of the Financial Crisis is that we learned how solid our banks are. In fact, the Big Five Canadian banks turn out to be the longest dividend payers in Canada.
- Royal Bank of Canada (TSX:RY)(NYSE:RY) has paid dividends since 1870
- Toronto-Dominion Bank (TSX:TD)(NYSE:TD) has paid dividends since 1857
- Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) has paid dividends since 1832
However, if I were a new investor, I would add only two Canadian banks to my portfolio, just so they don’t take over the whole portfolio. That’s why I only included the Big Three banks above. Investors shouldn’t go wrong picking any two of them. Today, Royal Bank yields 4.4%, Toronto-Dominion yields 4%, and Bank of Nova Scotia yields 4.8%.
When it comes to Canadian dividend payers that have the longest streak of growing dividends, the top spot lands on Canadian utilities. The number one spot goes to Canadian Utilities Limited (TSX:CU), which has increased dividends for 43 consecutive years. Its one-year, three-year, and five-year dividend-growth rates have consistently been between 8% and 10%. Today, Canadian Utilities yields 3.3%.
Fortis Inc. (TSX:FTS) takes the second spot with 41 years of dividend growth. Its one-year, three-year, and five-year dividend-growth rates have been between 3% and 4%. The spotlight on Fortis dims compared with Canadian Utilities. However, with Fortis focusing more on its core assets after selling its commercial property assets, there should be more growth ahead for Fortis. Today, Fortis yields 3.7%.
Who can live without their Internet and phone these days? I certainly can’t. Well, it turns out Telus Corporation (TSX:T)(NYSE:TU) has paid dividends since 1916. And it has increased its dividend for 11 consecutive years. In the past five years, it has consistently increased its dividend between 10% and 12%. Today, Telus yields 3.9%.
In a discussion about dividend investing, how can I not include a real estate investment trust (REIT)? REITs are companies that own and manage real estate.
Canadian REIT (TSX:REF.UN) is a diversified REIT with retail, industrial, and office properties. This REIT has the longest streak of dividend growth in the Canadian REIT world. It has increased its distributions for 13 years in a row. Today, Canadian REIT yields 4.5%.
Remember to buy and hold REITs in a TFSA or an RRSP to avoid headaches when reporting taxes, because REITs pay out distributions that are not taxed like Canadian-eligible dividends.
It’s rare to find consumer defensive stocks in Canada, but Empire Company Limited (TSX:EMP.A) is one of them. It has 1,500 retail stores in 10 provinces under the banners Sobeys, Safeway, IGA, Foodland, FreshCo, Thrifty Foods, and Lawton’s Drug Stores. Empire Company also has interests in real estate, including owning 41.5% interest in Crombie Real Estate Investment Trust, a retail REIT that pays a juicy yield of 7.1%. Today, Empire Company yields 1.5%.
Assuming you picked Royal Bank of Canada and Toronto-Dominion Bank as your investments in the financial sector, if you were to buy the same amount in these seven companies today, you’d get an average yield of 3.6% for starters. You’d have 28.6% invested in the Canadian banks and utilities, and 14.3% in the other holdings.
Dividend investing requires patience. It’ll take time before your dividends get traction. Visualize the day when your dividend portfolio can fund itself, so you can choose to stop investing your paycheck and buy something nice for yourself if you so choose.
Fool contributor Kay Ng owns shares of CANADIAN UTILITIES LTD., CL.A, NV, CDN REAL ESTATE UN, Royal Bank of Canada (USA), TELUS (USA), The Bank of Nova Scotia (USA), and The Toronto-Dominion Bank (USA).