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

A diversified portfolio of dividend stocks can be a lifesaver, but which are the best options to consider right now for Canadians?

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Canadian investors continue to be focused on dividend stocks to help with the economic downturn, as well as prepare for a potential recession. But if you’re hoping to create a diversified dividend portfolio, you don’t necessarily want to only invest in whichever dividend stocks have the highest yield.

Today, let’s look at what Canadians should consider when creating a dividend portfolio, and some dividend stocks to get you started.

Consider the risks

By risks here I mean those that could threaten capital preservation and appreciation in the years to come. I’ll give you a hint, investors are facing several right now. They include inflation and interest rates, as well as a market drop that could put your diversified portfolio at risk.

Therefore, you need to have investment options that weigh against each other when you’re choosing your dividend stocks. While dividend stocks offer steady income, should the market drop you could still see a massive decrease in your overall portfolio.

So as you build up your investments, certainly consider the types of holdings you have, as well as where you should invest in the future. This would include investing in stocks from different industries.

Top industries to consider

Some dividend stocks Canadian investors might want to consider would be involved in stable industries. These would be dividend stocks that will be here no matter what happens in the market. So let’s go over a few options.

Infrastructure stocks are a solid choice as they provide critical support for the way we live. Whether it’s driving the highway to work, or turning on your taps in the morning, that comes down to infrastructure.

Another similar choice would be energy production. Whether that means utilities, oil and gas, or renewable energy is up to you. Investing in all three could also be a good option among dividend stocks for diversification.

Finally, in Canada there is an oligopoly of Canadian banks. We simply don’t have the competition, making these banks a strong and solid option. Canada hasn’t seen a bank crisis since 1840, so we’re looking pretty good for the next few years at least.

3 dividend stocks to consider

Now for the dividend stocks to pick up today. In infrastructure, Brookfield Infrastructure Partners LP (TSX:BIP.UN) is a solid growth option among dividend stocks. It invests around the world in every type of infrastructure product. Its goal is long-term growth through these investments, providing you with sustainable growth as well.

Shares of BIP stock are up 13% year to date, offering a 4.21% dividend yield as of writing.

For myself, I would consider the renewable energy sector as another solid option. But I also like utilities. That’s why I would pick up Hydro One (TSX:H) as another of the dividend stocks today. It provides utilities to Canada’s most populated province of Ontario. Further, this is done through hydro power, so there is a lot of room to grow.

Shares are up 4% year to-date, and it currently offers a 3.03% dividend yield.

Finally, if you trust Canada’s economy to recover, then I would consider Canadian Imperial Bank of Commerce (TSX:CM) as a solid final option. It’s down significantly, but with a high yield. And with investments mainly in Canada, it will certainly recover with strength in the next few months.

Shares are up 2% year to date, though down 17% in the last year, with a 6.01% dividend yield as of writing.

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 Amy Legate-Wolfe has positions in Canadian Imperial Bank Of Commerce. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

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