Canadian Stocks with Dividends

Like any other dividend paying investment, investors will often choose to add Canadian dividend stocks to their portfolio to take advantage of regular cash payments from the underlying asset in addition to any appreciation they might see when they decide to sell their shares. Many Canadian stocks are offered by extremely stable companies including the large Canadian banks. These enterprises offer stable returns on your investment that have historically kept a few points ahead of the current inflation rate.

High Yields Are Attractive

You may also find international stocks pay a rate much higher than the more stable companies. If a stock’s current dividend rate is over 10%, it may still be a good item to add to your portfolio. However, you must recognize that it will carry more risk, and your investments should be diversified accordingly to minimize any potential losses. For a few examples of high paying Canadian dividend stocks, the Yellow Pages Income Fund was showing an 18.11% dividend yield, and the Penn West Energy Trust was reported to have a 15.37% dividend yield.

Canadian Dividend Stocks Could Pay For Themselves

If you’re interested in investing your money in one of these stocks, you should consider one of the Canadian dividend stocks that have been dubbed a dividend aristocrat by Standard and Poor’s. While many investors may be familiar with the American companies that are on this list, they may not have noticed that it includes a few Canadian stocks as well. To be added to the aristocrat stock list, a company must have weathered bad times, as well as flourished in good times, without cutting dividend payments to their shareholders. If you hold these stocks for a few years, you can see that your initial investment could be repaid well before you decide to sell your shares. The following list shows a few of these smart investment choices:

• Bank of Nova Scotia (BNS) – dividend yield of 4.2% with a one-year return of 32.4%
• Toronto-Dominion (TD) – dividend yield of 3.5% with a one-year return of 38.3%
• Enbridge (ENB) – dividend yield of 3.7% with a one-year return of 31.1%

Canadian Dividend Stocks Are Traded On The New York Stock Exchange

If you currently invest in US stocks, it’s just as convenient to purchase Canadian dividend stocks. It makes sense that these investment options would be traded on the Canadian Stock Exchange in Toronto (TMX), but many are also available on the New York Stock Exchange. You should be able to purchase selected Canadian dividend stocks in the same manner that you invest in any major US stock.

The following Canadian dividend stocks are traded on the New York Stock Exchange and have shown stable rates of return in recent years:

• Bank of Montreal (BMO) with a yield of 4.32%
• BCE Inc (BCE) with a yield of 5.63%
• Canadian Imperial Bank of Commerce (CM) with a yield of 4.57%
• Sun Life Financial Inc (SLF) with a yield of 4.59%
• TELUS Corporation (TC) with a yield of 5.20%
• TransCanada Corporation (TRP) with a yield of 4.29%

Regular Dividend Payments Can Grow Your Portfolio

Many people are attracted to Canadian dividend stocks because of their high dividend yield when compared to other investment options. These stocks continue to offer a monthly or quarterly payback on your initial investment that helps increase your return while offsetting your losses due to inflation. If you also enroll in any available DRIP plans, the benefit will quickly compound as your number of shares grows with every dividend payment.

Tax Implications

Don’t forget that while dividends are given preferential tax treatment in most cases, they are still considered taxable income. The Canadian government will impose a 15% non-resident withholding tax on these dividend payments, but you can recoup a portion of this cost by filing for a foreign tax credit on your yearly tax return. Depending on your individual situation, the US income tax on these dividends may vary, but it will generally amount to a tax of 15% or less.

Dividend Income Strategy

When you invest in dividend-paying stocks or mutual funds, you will receive a periodic dividend payment in the form of cash or additional shares. While many dividend investors use this income for living expenses or a special purchase, the best option is to reinvest the dividend income to grow your portfolio.

Use Dividend Income to Increase Your Portfolio

A DRIP, or dividend reinvestment plan, is a simple way to reinvest those monthly or quarterly payments. The company or fund that you are investing in should be able to set this up at your request. Instead of sending you a check when it’s time for them to make their dividend payment, they will reinvest the amount in the same stock or fund that paid the dividend. If your dividend is not enough to purchase a whole share or an even number of shares, you’ll receive a partial share.

dividend income If you decide to take advantage of a DRIP, you’ll soon find that your ROI (return on investment) rate will show a vast improvement. You will be compounding your investment by purchasing additional shares which means that each dividend reinvestment will be slightly larger with each passing DRIP cycle.

In some cases, a DRIP may not be available. You can still take advantage of reinvestment options to increase your ROI on your own. While it will take a little more effort on your part, or your portfolio manager’s part, you can use the dividend payments to purchase more of the same stock or invest in different investment vehicles.

Dividend Income Funds Provide an Easy Diversification Option

Some people don’t have the time to analyze the stock market, while others don’t have confidence in their ability to make a smart choice. Regardless of the reason, many people choose to invest in a dividend income fund. This type of investment vehicle does all of the work for you by using professional market analysts to choose a variety of dividend paying stocks to make sure the fund is diversified to reduce the overall risk.

You might choose a dividend income fund for the guaranteed monthly payout. While some funds pay out only the dividends earned during the payment cycle, other funds state that they will pay a certain amount each month. If the fund does not make enough in dividend payments to cover the distribution amount, a portion of the principal will be included. The principal could be a gain earned on a stock that has increased in value or it could be from a stock sold at a loss.

Dividend and Income Taxes

Even if you reinvest your dividend payments, you must still report the amount on your yearly income tax returns. They will be taxed either as ordinary income or as qualified dividends. To be considered qualified, you “must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date” according to the IRS publication 550. If your regular income tax rate is 25% or more, your qualified dividend payments will be taxed at 15%. Otherwise, your qualified dividend income tax rate will only be 5%.

Wall Street Reform – What To Expect

The much anticipated and highly debated Wall Street reform bill has finally made its way into the final stretch, as Wall Street saw an exceptional week of trading. The reform has increased confidence abroad from foreign investors and governments, who have criticized the United States for lack of action on financial reform, and has eased many concerns regarding the accountability of the specific entities that had contributed to the recent financial crisis. The Wall Street reform places more focus on stability than on profit, and on protecting the consumer more than the financial institution.

Banks are required to have higher reserve funds to be able to account for any crisis, and credit rating agencies will be held more accountable for risky lending. A new consumer regulator will be added to the Federal Reserve, and this regulator will have the ability to oversee the Fed, which has been under fire for all of the ill-informed and audacious lending that has contributed to the financial melt down on Wall Street. The Federal Reserve scored a win, being able to retain its power to supervise all banks, when original plans were to strip the Fed of all its powers and make it a last resort for lending. Instead, the addition of the Consumer Financial Protection Bureau will keep the Federal Reserve regulated and in check.

This reform offers much more long term stability at the sacrifice of windfall profits for the financial giants. Financial giants such as Goldman Sachs would be prohibited from proprietary investing and would be limited in their investments in hedge funds and private equity funds. Banks would be under greater regulation regarding credit cards and mortgages, but would retain their ability to invest in foreign exchange rate and interest swaps, which are known to contribute most to their growth.

The market has had a great week that was much better than anticipated due to the fact that the bill was becoming finalized and foreign confidence was on the rise as Europeans and Canadians regained confidence in the ability of the United States to regulate Wall Street, which was the epicenter of the financial crisis that sent ripples into foreign economies as well as our own. Consumers are able to place more confidence in the financial sector as well, knowing that the reform will offer them much more protection than they had ever been afforded in the past. The Wall Street reform bill is expected to pass and be signed into law by President Barack Obama before the July 4th recess. This will be known as another key domestic policy win for the President, with congressional elections fast approaching.