How to Create a Diversified Portfolio of Canadian Dividend-Paying Stocks

Wondering how to build a high-end investment portfolio that generates a ton of income? Check out these top dividend-paying sectors.

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Canadians are fortunate to have an abundance of choices when it comes to dividend-paying stocks. Not only are there a ton of companies that pay dividends, but there are plenty of sectors to choose from.

When building an enduring portfolio for passive income, it is important to be diversified with an array of high-quality stocks. Here are some top sectors to look for income when building a diversified stock portfolio.

Energy stocks

Energy stocks can be cyclical and volatile. However, there are a select few that have been brilliant stars when it comes to the dividend-growth game. Canadian Natural Resources (TSX:CNQ) is one of Canada’s most prolific dividend-growth stocks. It has grown its dividend by a 20%-plus compounded annual growth rate (CAGR) for over 23 years!

Canadian Natural is an exceptional Canadian company. It can generate excess free cash if oil prices stay over US$35 per barrel. The company has a very strong balance sheet. That provides ample flexibility to return capital back to shareholders.

This stock earns a 4.6% dividend yield, but that could rise as CNQ continues to increase its dividend. Other great energy stocks for income include Tourmaline Oil and Whitecap Resources.

Utility stocks for dividend income

Utility stocks are some of the safest stocks for dividend income. They earn regulated revenues streams that are backed by essential services like power, gas, or water. One of the most prudently managed utilities in Canada is Fortis (TSX:FTS). It operates a large portfolio of regulated transmission and distribution utilities across North America.

The company has grown its dividend for 49 consecutive years. While FTS only yields 3.7%, management expects to keep growing its dividend by around 4–6% annually for the next five years. This is a sleepy stock, but it delivers steady returns over time.

Infrastructure stocks

Infrastructure stocks are those that operate economically essential assets like ports, railroads, energy infrastructure, home services, cell towers, and data centres. If you would like all those assets in one company, Brookfield Infrastructure Partners (TSX:BIP.UN) is the perfect stock. The global asset manager operates a portfolio that is diversified by asset and geography.

Brookfield’s global presence and operating expertise enable it to acquire assets anywhere where it sees value. The company has utilized a smart acquisition strategy to elevate returns over the past decade.

Today, this stock pays a 4.4% dividend yield, but it has a decade of 8%-plus compounded annual dividend growth under its belt. Other quality infrastructure stocks to consider for income include Pembina Pipeline, AltaGas, and Canadian National Railway.

Other dividend stocks

Some other great places to find dividends include real estate, telecommunications, and financials. Real estate stocks earn contracted income from leases, so they often can afford to pay dividends monthly. Some top real estate stocks for income include Dream Industrial REIT, Granite REIT, Canadian Apartment REIT, and BSR REIT.

TELUS is a great telecom stock for dividend growth, and it also has some upside from its digital vertical businesses. Likewise, financial stocks like goeasy, EQB, and Royal Bank have been solid stocks for growing dividends and total returns.

The Foolish takeaway

Don’t just look for big dividends when building an income-producing portfolio. Rather, look for great businesses that also pay solid, growing dividends. Own a mix of these top businesses in a wide array of sectors and you stand to do very well over the long term.

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 Robin Brown has positions in BSR Real Estate Investment Trust, Brookfield Infrastructure Partners, Dream Industrial Real Estate Investment Trust, Goeasy, Granite Real Estate Investment Trust, and Tourmaline Oil. The Motley Fool recommends BSR Real Estate Investment Trust, Brookfield Infrastructure Partners, Canadian National Railway, Canadian Natural Resources, Dream Industrial Real Estate Investment Trust, Fortis, Granite Real Estate Investment Trust, Pembina Pipeline, Tourmaline Oil, and Whitecap Resources. The Motley Fool has a disclosure policy.

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