Is Buying the Best Dividend Stocks a Good Investing Strategy for 2018?

Here is why buying some of the best dividend stocks, such as Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) and BCE Inc. (TSX:BCE)(NYSE:BCE), is a good investing strategy for 2018.

| More on:
think, plan, and act to work towards your financial goals

As we enter 2018, the biggest questions in investors’ minds are these: which sector is going to outperform, and which stocks are going to deliver market-beating returns?

The answer to these questions largely depends on your investment goals and your time horizon. If you’re looking to make a quick buck, then probably you would be better off by investing in technology and marijuana companies, which have produced high-octane returns in 2017, and haven’t yet lost their momentum.

But if you’re investing to build your nest egg or a low-risk, income-generating portfolio, then investing in dividend stocks is the best strategy. Here are my top three reasons that will make it easier for you to understand why dividend investing is the best strategy of all time.

Dividend stocks perform better

Dividend-paying companies are usually not the ones that make headlines. But away from the glamour and market noise, these companies continue rewarding their investors by paying consistent and growing dividends.

Many studies have shown that dividend stocks have outperformed the broader market consistently. According to one such study by Goldman Sachs‘s wealth management division, dividend-paying stocks produced ~15-fold better returns than non-dividend-paying companies between 1972 and 2014.

As a long-term income investor, you should own companies that not only pay dividends, but that also consistently raise them. This combination is a great recipe for an investment portfolio, which will perform much better during different market cycles.

Dividends make managers accountable

Rewarding investors quarter after quarter isn’t an easy thing. Companies that take this route answer to their shareholders who rely on them for their financial needs. Their investors mainly include retirees, savers, and fund managers who are responsible for managing their clients’ money.

This pressure keeps company executives on their toes to perform better and stop them from taking unnecessary risks.

In Canada, Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) and BCE Inc (TSX:BCE)(NYSE:BCE) are some of the examples of best dividend stocks that have solid histories of rewarding their investors.

Dividend stocks provide a hedge against inflation

Investing in companies that consistently grow their dividends protects your portfolio from the impact of inflation. There are a plenty of options in today’s market that provide a double-digit growth in dividends each year.

In an environment when return on GICs and saving accounts is in the low single digits, earning 10% or 12% dividend growth is a great inflation-beating strategy.

Enbridge Inc. (TSX:ENB)(NYSE:ENB), one of the top energy infrastructure companies in North America, has recently announced its plans to grow its dividend 10% each year through 2020. This certainty works in the favour of investors who can better plan their spending in their golden years.

The bottom line

Pick some solid dividend-paying companies. If you have a long-term investing plan, dividend stocks are your best friends in 2018. They will beat the market over the long run. 

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 Haris Anwar has no position in any stocks mentioned. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Dividend Stocks

Turn a $10,000 Investment Into $844 in Cash Every Year

The power of compound interest from regular investments in quality dividend stocks can deliver solid long-term returns and make you…

Read more »

Dividend Stocks

Grab This 10.8% Dividend Yield Before It’s Gone!

This dividend stock is down 43% in the last year, and it's about to turn around in the near future.…

Read more »

grow dividends
Dividend Stocks

2 TSX Dividend Stocks With Seriously Huge Payouts 

If you are looking for dividend payouts of up to 7-11% of the stock price, now is the time, as…

Read more »

Shopping card with boxes labelled REITs, ETFs, Bonds, Stocks
Dividend Stocks

For $1,000 in Annual Income, Buy 1,163 Shares of This TSX Stock

Fiera Capital is a popular TSX dividend stock as it currently offers a tasty yield of 13.3%. But is the…

Read more »

A plant grows from coins.
Dividend Stocks

Old Faithfuls: Canadian Stocks Whose Dividend Payments Rise Each Year

Income investors should feel safe and secure owning three dividend aristocrats, also known as the old faithful trio.

Read more »

Retirement plan
Dividend Stocks

Boost Your CPP Pension With This Simple Hack

The CPP takeout decision is never easy, although one simple hack can significantly increase the pension payment.

Read more »

value for money
Dividend Stocks

Investors, Don’t Miss Out on These Top Dividend Stocks!

The stock market turmoil has driven these two Canadian dividend stocks down lately. But they might not remain cheap for…

Read more »

analyze data
Dividend Stocks

Better Buy for Dividends: TD Stock or Enbridge Stock?

TD and Enbridge trade near their 12-month lows. Is one stock now oversold?

Read more »