Investing in the equity markets at regular intervals is a strategy called dollar cost averaging. Here, you allocate a certain sum of money each month or each quarter to benefit from the volatility associated with the stock market. As it’s impossible to time the market, it makes sense to remain invested in this asset class that has a history of outpacing inflation over time.
So, let’s see where you should invest in May 2024.
Invest $500 in quality dividend stocks
Canadian investors should identify a portfolio of quality dividend stocks that offer a tasty yield and a growing payout. So, you should invest in companies that are equipped with strong fundamentals and part of expanding markets. Moreover, their dividend payout should be sustainable providing companies with the flexibility to reinvest in growth projects, target acquisitions, lower balance sheet debt and raise dividends consistently.
One TSX dividend stock that ticks most of these boxes is Enbridge (TSX: ENB), which offers you a tasty forward yield of 7.3%. Enbridge is a diversified energy company that pays shareholders an annual dividend of $3.66 per share. While Enbridge is part of a cyclical sector, it has raised dividends by roughly 10% annually since 1995, showcasing the resiliency of its cash flows.
A majority of Enbridge’s cash flows are tied to inflation-linked contracts, shielding the energy giant from fluctuations in commodity prices.
In addition to a high dividend yield, investors should also benefit from capital gains over time. In the last 20 years, ENB stock has returned 300% to shareholders. After adjusting for dividend reinvestments, cumulative returns are much higher at 862%.
Invest $500 in growth stocks
You can consider allocating $500 to quality growth stocks such as Constellation Software (TSX: CSU). Typically, growth stocks generate outsized gains for shareholders during bull markets and trail major indices when sentiment is bearish.
Valued at a market cap of $77.4 billion, Constellation Software stock has returned close to 20,000% to shareholders since its initial public offering in 2006. It means a $500 investment in CSU stock soon after the company went public would be worth more than $100,000 today.
Constellation Software also provides shareholders a dividend yield of 0.15% which might seem too high. But these payouts have increased 13.5% annually since 2008, enhancing the yield at cost in this period.
Invest $4,000 in low-cost index funds
While investing in individual stocks might seem enticing, a majority of your investments should be allocated towards low-cost index funds that track benchmarks such as the S&P 500. The S&P 500 index offers you exposure to some of the largest companies in the U.S. at a low cost, offering investors diversification.
In the last five decades, the S&P 500 index has returned more than 10% annually despite multiple economic downturns that include the dot-com bubble, the financial crash, and the COVID-19 pandemic.
One TSX exchange-traded fund that tracks the S&P 500 index is Vanguard S&P 500 Index ETF (TSX: VSP). With more than $3 billion in assets under management, the VSP ETF is hedged to the Canadian dollar, protecting investors from fluctuations in exchange rates.
