All posts by Pat McKeough

Best Canadian stocks are usually well-established Blue Chips with history of Stability & Dividend Payments

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Good Canadian stocks of blue chip companies can give investors an additional measure of safety in volatile markets. And the best ones offer an attractive combination of moderate p/e’s (the ratio of a stock’s price to its per-share earnings), steady or rising dividend yields (annual dividend divided by the share price) and promising growth prospects.

We feel most investors should hold the bulk of their investment portfolios in blue chip investments. And most of these stocks should offer good “value” — that is, they should trade at reasonable multiples of earnings, cash flow, book value and so on. Ideally, they should also have above average-growth prospects, compared to alternative investments.

Find a middle ground with p/e’s  

One of the biggest mistakes investors make is buying low p/e stocks, thinking that will ensure they’re getting a “bargain.” Sometimes that’s true, but sometimes a low p/e stock is a sign of danger.

As for high-p/e stocks, we generally only recommend them as buys if we feel they have above-average investment appeal and deserve an above-average p/e.

Rather than focusing on low p/e stocks and avoiding high p/e stocks, you will generally make more money in the middle ground. That is, invest mainly in well-established stocks that have an appealing long-term growth record — and a moderate p/e. These are the stocks we favour in our Successful Investor approach. In our experience, they provide above-average returns in the long run. That’s because they provide nice gains in rising markets, and they also tend to hold up well when the market declines.

Buy shares in banks, which have a history of stability 

On the whole, the best Canadian banks to invest in trade at attractive share prices. Because they are growing, yet cheaper in many respects than other stocks, they give conservative Canadian investors a near-ideal combination of pluses: above-average dividend yields and track records; low to moderate per-share price-to-earnings ratios; and above-average long-term capital gains.

That’s why we’ve continually recommended buying Canada’s top five bank stocks since the 1970s. It’s also why that advice has paid off so nicely.

Canadian bank stocks have long been one of our top choices for growth and income, and we recommend that most Canadian investors own two or more of the Big-Five Canadian bank stocks — Bank of Nova Scotia, Bank of Montreal, CIBC, TD Bank and Royal Bank. That’s in large part because of their importance to Canada’s economy.

Canadian banks stocks have been some of the best income-producing securities.

  • Look for Canadian bank stocks with consistent dividends.
  • And remember bank stock dividends are a sign of investment quality.
  • They also can grow.

Look for value stocks with a history of success to add good Canadian stocks to your portfolio

At the core of the value investing approach is the ability to identify well-financed companies that are well-established in their businesses and have a history of earnings and dividends. Continue Reading…

A higher dividend yield isn’t always better: How to spot the good from the bad to avoid this costly mistake.

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is higher yield dividend better

Investors interested in dividends should only buy the highest-yielding Canadian dividend stocks if they meet these criteria — and don’t have these risk factors

Dividend yield is the percentage you get when you divide a company’s current yearly payment by its share price.

The best of the highest-yielding Canadian dividend stocks have a history of success

Follow our Successful Investor philosophy over long periods and we think you’ll likely achieve better-than-average investing results.

Our first rule tells you to buy high-quality, mostly dividend-paying stocks. These stocks have generally been succeeding in business for a decade or more, perhaps much longer. But in any case, they have shown that they have a durable business concept. They can wilt in economic and stock-market downturns, like any stock. But most thrive anew when the good times return, as they inevitably do.

Over long periods, you’ll probably find that a third of your stocks do about as well as you hoped, a third do better, and a third do worse. This is partly due to that random element in stock pricing that we’ve often mentioned. It also grows out of the proverbial “wisdom of the crowd.” The market makes pricing mistakes and continually reverses itself. But the collective opinion of all individuals buying and selling in the market eventually beats any single expert opinion.

Canadian dividend stocks and the dividend tax credit

Canadian taxpayers who hold Canadian dividend stocks get a special bonus. Their dividends can be eligible for the dividend tax credit in Canada. This dividend tax credit — which is available on dividends paid on Canadian stocks held outside of an RRSP, RRIF or TFSA — will cut your effective tax rate.

That means dividend income will be taxed at a lower rate than the same amount of interest income. Investors in the highest tax bracket pay tax of around 29% on dividends, compared to 50% on interest income. At the same time, investors in the highest tax bracket pay tax on capital gains at a rate of about 25%.

The Canadian dividend tax credit is actually split between two tax credits. One is a provincial dividend tax credit and the other is a federal dividend tax credit. The provincial tax credit varies depending on where you live in Canada.

A couple of decades ago, you could assume that dividends would supply up to about one-third of the stock market’s total return. Dividend yields are generally lower today than they were a few years ago, but it’s still safe to assume that dividends will continue to supply perhaps a third of the market’s total return over the next few decades. Continue Reading…

Avoid new issues but high-quality stocks likely to gain in value over next year

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The IPO or “Initial Public Offerings” market — more commonly known as the new issues market — has gone through an extraordinarily bad time this year. It’s been bad for all three of the groups that take part in this market. They are as follows:

Investors who put their money in new issues have lost substantial sums in the past year. On average, new stock issues tend to do worse than the rest of the market in their first few years of public trading. This past year, they performed much worse than ever.

Financial institutions that bring new issues to market for sale to investors have suffered, too, because demand for new issues has dried up. At this time of year in 2021, the new issues market had raised around $100 billion. So far this year, it has raised just $5 billion. In the past quarter century, the new issues market raised an average of $33 billion at this point in the year.

Companies that raise capital for themselves through the new issues market are suffering as well. When the new issues market began drying up as a source of corporate funding, many would-be issuers of new stocks found it was harder and more expensive than ever to find alternate sources of financing.

This will be worst year for IPOs since 2009

This will be the worst year for raising money in the new issues market since 2009, when the economy was struggling to pull out of the 2008/2009 recession.

As long-time readers know, we generally advise staying out of new stock issues. After all, there’s a random element in the success or failure of every business, especially when it’s just starting out. But new issues expose you to a special risk that you avoid with stocks that have been trading publicly for some time. That is, you can only invest in new issues when they come to market.

This is just one more example of a conflict of interest, which we’ve often referred to as the worst source of risk you face as an investor.

Companies only come to the new issue market to sell their stock when it’s a good time for the company and/or its insiders to sell. The insiders can’t predict the future, of course. However, they do know much more than outsiders do about their company. Continue Reading…

Here’s how Dividend Capture Strategy Returns work—and whether you can realistically profit from them

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Aiming For Dividend Capture Strategy Returns May Look Like A Sure Way To Make Money. But There Are Risks You Need To Watch Out For

“Dividend capture strategy returns are the trading technique of buying a stock just before the dividend is paid, holding it just long enough to collect the dividend, then selling it. If you can sell it for as much as you paid, you have “captured” the dividend at no cost, other than the transaction costs.

This strategy is executed by buying a stock just before the ex-dividend date, so that you will be a shareholder of record on the record date, and will receive the dividend. Because the stock falls by the amount of the dividend on the ex-dividend date, the strategy then calls for you to wait for the stock to move back to the price where you bought it before the ex-dividend date. At this point, in order to benefit from the dividend capture strategy returns, you sell the stock for a break-even trade.

Here are key dividend payment dates you’ll need to know to aim for dividend capture strategy returns

The declaration date is the date on which a company’s board of directors actually sets the amount of the next dividend. Typically it is a number of weeks in advance of the actual payout date.

The record date is the date on which a person has to actually own shares in the company in order to receive the declared dividend.

The ex-dividend date is typically the last business day before the record date. The ex-dividend date is in place to allow pending stock trades to settle. In short, the security trades without its dividend any day after the ex-dividend date. If you buy a dividend-paying stock one day before the ex-dividend you will still get the dividend; if you buy on the ex-dividend date or after, you won’t get the dividend. The reverse is true if you want to sell a stock and still receive a dividend that has been declared: you will need to sell on the ex-dividend day or after.

The payable date is the date on which the dividend is actually paid out to the shareholders of record.

Profits may prove very elusive for small investors looking to profit from dividend capture strategy returns

A dividend capture strategy can pay off when stock markets are rising. Of course, any strategy that leads you to buy can pay off when stock markets are rising. However, you have to pay a brokerage commission to buy the shares and a commission to sell. The commissions can eat up much of the dividend income. They may exceed the dividend income. Continue Reading…

Buying Stocks without a Broker: Here’s how to pick the best investments on your own

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A growing number of  Investors like buying Stocks without a Broker because they’re able to  avoid possible Conflicts of Interest and Save on Broker Fees. However, it’s especially important to know what to Buy if you’re not using a Broker

Many investors assume their broker is honest and has their best interests at heart; if this proves to be untrue, they will shop for better stock trading advice from a new broker. Of course, many investors decide on buying stocks without a broker. That can be a successful strategy if you choose the best options for your investment temperament—using our Successful Investor approach.

Buying stocks without a broker: Why it might be a smart move for some investors

As any good stock broker or experienced investor can tell you, bad brokers are all too common. By “bad brokers,” we mean those who put their own interests above that of their clients. Keep in mind, however, that most bad brokers do this in a perfectly legal fashion, by catering to their clients’ whims and weaknesses.

Here are three main practices that bad stock brokers often practice:

  • Aiming for stability rather than growth
  • Double dipping
  • Stressing low-risk, low-return, high-fee structured products in client accounts

Additionally, you may have noticed that your broker sometimes uses unfamiliar words and phrases to describe investment concepts. Some of this stock broker jargon is simply shorthand that brokers use among themselves, to refer to familiar situations without having to go into any detail on the underlying concept. However, the concepts that these “broker-ese” words and phrases represent also serve to further the goals of the brokerage business.

If you find yourself thinking in broker-ese, you’ll naturally make assumptions that are in tune with the goals of your broker. They may be out of tune with yours.

Here’s one example: from time to time, your broker may advise you to sell a particular stock you own because it represents “dead money.” This doesn’t mean there’s anything wrong with the stock, or the company. Instead, your broker simply thinks the stock may only go sideways for a period of months or longer, producing no capital gains for you. So they naturally feel you should sell it and buy something with better short-term capital-gains potential. Continue Reading…