The Power of Dividend Income – Grow Your Portfolio Faster
I am presenting you with all my dividend income since I started tracking them and since
I took control of my investments. I use a spreadsheet to track all my dividend income
and portfolio performance and share a guide to building your dividend tracker.
If you are unsure about dividend investing, see “Why I chose Dividend Investing.” It’s
the ultimate passive income machine. If you are still reading and like what you see, I
strongly recommend that you sign up for my newsletter. It’s free, and I have unique
content. Dividend income is a true form of passive income, where you earn money in
your sleep. Up until 2013, my portfolio was mostly made up of high-yield stocks, but I
realized that dividend growth holdings perform better for both stock appreciation and
dividend growth, and you can see how the growth accelerated below.
Dividend income is only one part of the journey. In fact, it’s only needed when you need
to live on the income and also need dividend growth to beat inflation. I break down my
strategy as follows:
Accumulation Phase = high dividend growth stocks (usually lower yield
and lower income). I expect the dividend growth to be over 10%.
Retirement Phase = the financial independence nirvana with dividend
income but not high dividend yield with no growth. The market yield will
generally be between 3%-4%, with a dividend growth of over 5%.
The Best Canadian Stocks – Keep it simple
Many stocks, ETFs, and mutual funds trade in Canada, and it can be overwhelming to
decide what to buy. At some point, you reach the state of research paralysis and take
no action. Researching the best Canadian stocks for your portfolio doesn’t have to be
hard. You usually start from a list such as the Canadian Dividend Aristocrats or, better
yet, the Canadian Dividend Achievers. Those lists narrow down the stocks to look into,
but that’s where the complexity starts, as there are many, many, many ways to create
stock lists. You will see below the various ways you can build a list. What’s important is
to know what you are looking for.
A word of caution. Don’t start screening with yield. If that’s what you are doing, you
already decided to leave a lot of money on the table. Even if you are retired, unless you
have a pile of cash that it doesn’t matter, but that’s not the situation of most investors.
Focusing on Mid to Large Market Cap Stocks
Let me show you what the best 5 stocks by market capitalization are based on the
following market capitalization grouping. You can read more details on what market cap
means to risk in a more detailed post, but the size of company matters greatly.
Stability and moat are critical here. Innovative solutions can be profitable but they often
can be copied. As such, smaller companies with growth are interesting but not without
higher risks.
Market Cap Tier Value Range
Mega Cap > $200B
Large Cap $10B - $200B
Mid Cap $2B - $10B
Small Cap $300M - $2B
Micro Cap $50M - $300M
Nano Cap < $50M
Mega Cap: These companies dominate their industry and often have very
little competition. Their challenges are often around becoming too much of
a monopoly and regulators stepping in.
Large Cap: These companies are very mature and usually have a moat.
There is competition but it is limited to a small number of companies.
Mid Cap: These companies have grown and are focused on dominating
their business. At this level, you get a higher level of safety compared to
the smaller companies.
Small Cap: These companies are in the growth business life cycle and
have potential to grow more or be acquired. There are still risks and your
money could go sideways at times but you could have higher returns.
Micro Cap: These companie have usually struggle to grow at the
expected pace. Still in the start-up phase to some extent working to get in
the growth phase. There is potential but it's also risky.
Nano Cap: These companies fall into the penny stocks category. These
companies have the highest risk with the potential for some high reward.
For the remaining selection of stocks, the focus will be on mid to large-market cap
stocks. There aren’t any mega market cap stocks in Canada, by the way.
Methodology for the Best Stocks in Canada
The approach here is to stabilize the business with good total return. This is not
about building a retirement dividend income but total returns, including compounded
dividends. In retirement, you can switch your millions invested into income-producing
stocks. The retirement portfolio is another option for a long-lasting dividend income
portfolio. For example, the model portfolio is built exclusively with large-cap stocks. My
portfolio has just around 20 stocks, all large-cap stocks. The goal of showing the best
five stocks by market cap is to help understand what exists in each grouping, as each
group comes with an investment risk. It will help show how to balance your risk vs return
strategy. One caveat to the selection process is that I will exclude oil and gas stocks
and mining stocks. Unfortunately, these companies are too impacted by commodity
prices to have enough stability.
Below is a table that will show you at a high level the composition of the dividend stocks
on the TSX.
The ratio
Dividend
Market Cap Stocks Ratio
Stocks
Mega Cap 0 0 0.00
Large Cap 71 66 92.30
Mid Cap 152 111 73.02
Small Cap 252 146 57.93
Micro Cap 223 65 29.14
Nano Cap 143 18 12.59
of dividend-paying stocks to non-dividend-paying stocks is an important part of the risk
factor, as the ability to pay a dividend consistently implies revenue stability.
The ability to grow the dividend annually shows not only the ability to have consistent
and stable revenue but also a growing revenue. Getting dividend income in the
retirement years, it’s important to have dividend growth; otherwise, you lose to inflation.
Did you see the pattern in the number of stocks paying a dividend? The larger the
company, the more it tends to pay a dividend. Note that you need access to specialized
dividend data to screen dividend stocks. You should consider a screener such
as Dividend Snapshot Screeners.
Best 5 Canadian Mega Cap Stocks
There are no mega-cap stocks in Canada. While I hold many of them in my portfolio,
they are all U.S. mega-cap stocks. They are also my best-performing stocks. If you
aren’t ready to deal with the currency exchange, buy the best S&P 500 ETF. Another
option is the NASDAQ 100 with XQQ, but know that 90% of the NASDAQ 100 is
included in the S&P500. The NASDAQ 100 is more volatile, and your blood pressure
may be impacted ;)
Best 5 Canadian Large Cap Stocks
This group includes most of the TSX blue-chip stocks, which tend to be oligopoly. These
Canadian stocks are more stable but generally have moderate growth.
Of the five picks below, only one has a good dividend yield for a dividend-focused
investor. The other picks are focused on dividend growth. None have a dividend yield
above 4%, but they have excellent dividend growth.
Not a place for energy dividend stocks here sadly. There are better options to start with.
Canadian National Railway
TSE:CNR | Industrials | Railroads
Grade: A
Market Cap: 100.36B (Large Cap)
P/E: 18.87
Dividend Yield: 2.12%
Dividend Aristocrat: YES
Dividend Growth Fit: 7/10
Dividend Income Fit: 4/10
Chowder Score: Members Only
Revenue Growth: Members Only
Dividend Growth: Members Only
Brookfield Asset Management
TSE:BAM | Financial Services | Asset Management
Grade: C
Market Cap: 28.01B (Large Cap)
P/E: 45.29
Dividend Yield: 3.14%
Dividend Aristocrat: YES
Dividend Growth Fit: 5/10
Dividend Income Fit: 6/10
Chowder Score: Members Only
Revenue Growth: Members Only
Dividend Growth: Members Only
Alimentation Couche-Tard
TSE:ATD | Consumer Defensive | Grocery Stores
Grade: A
Market Cap: 68.51B (Large Cap)
P/E: 18.99
Dividend Yield: 0.97%
Dividend Aristocrat: YES
Dividend Growth Fit: 8/10
Dividend Income Fit: 3/10
Chowder Score: Members Only
Revenue Growth: Members Only
Dividend Growth: Members Only
Intact Financial
TSE:IFC | Financial Services | Insurance - Property & Casualty
Grade: B
Market Cap: 47.09B (Large Cap)
P/E: 23.26
Dividend Yield: 1.83%
Dividend Aristocrat: YES
Dividend Growth Fit: 8/10
Dividend Income Fit: 4/10
Chowder Score: Members Only
Revenue Growth: Members Only
Dividend Growth: Members Only
National Bank
TSE:NA | Financial Services | Banks - Diversified
Grade: B
Market Cap: 44.37B (Large Cap)
P/E: 12.70
Dividend Yield: 3.38%
Dividend Aristocrat: YES
Dividend Growth Fit: 6/10
Dividend Income Fit: 6/10
Chowder Score: Members Only
Revenue Growth: Members Only
Dividend Growth: Members Only
Best 4 Canadian Mid-Cap Stocks
This market cap segment is where you find up-and-coming future large-cap stocks.
Alimentation Couche-Tard, and Intact Financial were once part of this group.
Capital Power Corporation
TSE:CPX | Utilities | Utilities - Independent Power Producers
Grade: A
Market Cap: 6.54B (Mid Cap)
P/E: 9.93
Dividend Yield: 5.18%
Dividend Aristocrat: YES
Dividend Growth Fit: 7/10
Dividend Income Fit: 8/10
Chowder Score: Members Only
Revenue Growth: Members Only
Dividend Growth: Members Only
Equitable Group
TSE:EQB | Financial Services | Mortgage Finance
Grade: B
Market Cap: 4.11B (Mid Cap)
P/E: 9.26
Dividend Yield: 1.76%
Dividend Aristocrat: YES
Dividend Growth Fit: 6/10
Dividend Income Fit: 4/10
Chowder Score: Members Only
Revenue Growth: Members Only
Dividend Growth: Members Only
FirstService Corp
TSE:FSV | Real Estate | Real Estate Services
Grade: D
Market Cap: 11.51B (Large Cap)
P/E: 105.36
Dividend Yield: 0.54%
Dividend Aristocrat: YES
Dividend Growth Fit: 2/10
Dividend Income Fit: 2/10
Chowder Score: Members Only
Revenue Growth: Members Only
Dividend Growth: Members Only
Stantec
TSE:STN | Industrials | Engineering & Construction
Grade: C
Market Cap: 13.33B (Large Cap)
P/E: 38.53
Dividend Yield: 0.72%
Dividend Aristocrat: YES
Dividend Growth Fit: 6/10
Dividend Income Fit: 3/10
Chowder Score: Members Only
Revenue Growth: Members Only
Dividend Growth: Members Only
Best 5 Canadian Small Cap Stocks
This group of stocks is interesting as this is where most of the REITs are. Yet, I am not
a fan of REITs as you may have read.
Let’s be clear about this category: these are small-cap stocks and, therefore, have more
risks than large-cap stocks. I cannot say that the risk vs reward is worth it with this
group of stocks.
Calian Group Ltd
WELL Health Technologies Corp
Canaccord Genuity Group
Best 5 Canadian Micro Cap Stocks
This group of companies is either targeted for acquisition or growing by expanding.
However, this is also a risky investment group. It should represent a small part of your
portfolio. When the risk is discussed, equity is often highlighted as the highest risk, but
you should now see the difference between a large-cap stock and a micro-cap stock.
33% of the stocks in this group have no 5-year return yet, while another 33% have a
negative return over the last five years. That leaves only another 33% with a positive
return to select from. While I was hoping to see candidates I would consider, I could not
settle on any stock with any degree of confidence.
Best Canadian Nano Cap Stocks
We are going to skip this market cap group as, technically, this is now entering the high
speculation area of investing. That’s a much different investment strategy.
Best Dividend Stocks by Accounts
Now we make this more complex a little to figure out the best stock to hold in various
accounts. The best RRSP investments aren’t always what we think they should be.
Again, you need to focus on accumulation and decumulation.
The best TFSA investments are similar. The only big difference is to consider the US
withholding tax from US dividend stocks. Otherwise, you can hold the same stocks.
Investing in high-yield stocks isn’t about finding the best stocks; it’s a risky approach in
general. You become an active investor at that point since you have to pay attention.
My Portfolio By Market Cap
I have built a portfolio that delivers around 12% annualized returns (a.k.a. Annual ROR)
and have made my fair share of mistakes.
My leanings have been to keep it simple. Canada doesn’t have a lot of great options in
the end. Canada has a TSX 60 while the US has the S&P 500 for example. The
numbers just show you how many great companies you can find.
Portfoli Market
Accounts Ticker ROR % Years Held Yield
o Ratio Cap Group
Computershare TSE:TRP 16.76 13.96 6.20 0.44 Large Cap
Computershare TSE:T 10.48 13.95 7.05 0.19 Large Cap
RBC TSE:CSU 31.86 0.66 0.13 1.17 Large Cap
RBC TSE:RY 12.48 13.57 3.40 3.37 Mega Cap
RBC TSE:NA 15.20 12.57 3.42 3.06 Large Cap
RBC TSE:TD 7.18 12.57 4.99 0.00 Large Cap
RBC NE:YTSL 0.00 0.26 18.48 4.56 Large Cap
RBC-S TSE:CSU 43.20 0.90 0.13 0.39 Large Cap
RBC-S TSE:GSY 19.80 0.72 2.53 0.06 Mid Cap
RBC-S TSE:TD 24.25 0.43 4.99 1.74 Large Cap
RBC-S TSE:T 1.37 0.39 7.05 0.86 Large Cap
RRSP MSFT 24.91 12.01 0.80 7.07 Mega Cap
RRSP AAPL 24.44 9.96 0.44 6.63 Mega Cap
RRSP V 18.78 8.48 0.75 1.33 Mega Cap
RRSP ABBV 21.24 8.00 3.19 8.66 Mega Cap
RRSP COST 27.69 7.05 0.52 9.46 Mega Cap
RRSP MA 16.16 5.93 0.53 3.56 Mega Cap
RRSP GOOGL 15.98 2.25 0.00 2.88 Mega Cap
RRSP CTAS 43.68 0.73 0.76 2.39 Large Cap
RRSP AVGO 225.92 0.19 1.14 1.20 Mega Cap
RRSP NVDA 144.14 0.19 0.03 1.02 Mega Cap
RRSP ADP 32.35 0.72 1.95 3.92 Large Cap
RRSP-S ABBV 86.35 0.37 3.19 2.19 Mega Cap
RRSP-S TXN 11.88 6.48 2.69 2.14 Large Cap
RRSP-S AAPL 41.13 5.76 0.44 2.26 Mega Cap
RRSP-S V 8.17 3.84 0.75 1.40 Mega Cap
RRSP-S GOOGL 31.61 1.99 0.00 1.60 Mega Cap
RRSP-S AVGO 86.47 1.23 1.14 2.74 Mega Cap
RRSP-S CTAS 54.49 0.67 0.76 2.03 Large Cap
TFSA TSE:IFC 16.69 3.84 1.87 2.27 Large Cap
TFSA MSFT 19.46 3.40 0.80 1.31 Mega Cap
TFSA COST 29.72 3.40 0.52 1.10 Mega Cap
TFSA TSE:ATD 15.78 2.92 0.94 1.34 Large Cap
TFSA GOOGL 27.61 1.99 0.00 2.00 Mega Cap
TFSA TSE:WCN 42.77 0.91 0.63 4.16 Large Cap
TFSA-S TSE:FTS 40.81 0.37 4.15 0.53 Large Cap
TFSA-S TSE:EIT.UN 11.74 0.37 8.51 0.51 Mid Cap
TFSA-S TSE:TD 29.59 0.36 4.99 1.26 Large Cap
Showing 1 to 41 of 41 entries
