Savers are penalized not just a little by the current low interest rates. For many retirees who depend on it, it is even disturbing.
The latter suffer only the inconvenience of the situation. If, like many others, they could console themselves with a bargain mortgage, their house is paid off.
Government of Canada bonds have ridiculous interest rates. All so-called “safe” financial products are hit by ridiculous, almost invisible rates: GICs, Treasury bills, savings bonds, bank accounts, annuities …
To improve their lot, retirees have no choice but to consider actions, which are more risky. And to get regular income, they have to look to the securities of companies that pay dividends.
ABC of Dividend Stocks
Dividends are the part of the profits that a company pays to its shareholders. Not all companies give money to their owners in this way, far from it. Theoretically, those that pay stock holders are mature, well-established companies with regular and predictable profits.
In Canada, we spontaneously think of banks, but they are found in a host of sectors. Good stocks like this are in great demand: in addition to providing the bearer with a stable income, they are solid and gain value over time, resulting in capital gains.
It’s the best of both worlds, especially since dividends are taxed less than interest on bonds.
But we should not tell stories, these are not for all that concrete investments.
Many companies that do not collect enough liquidity nevertheless distribute their profits, compromising their development.
Without being able to offer growth prospects to investors, other companies, in decline, are content to pay their shareholders before their last lap. We don’t touch that.
When you search the databases of financial news sites, you can easily find dozens of companies that pay more than 5% dividends per year to their shareholders, just on the Toronto Stock Exchange. A handful pay more than 10%.
We must beware of it. Even if the sums paid to shareholders do not change, the dividend rate itself varies according to the share value. The more expensive the action, the lower the percentage rate. When this rate seems too good, it is often that the title is not worth much.
With stock prices at record highs, dividend rates aren’t breaking the bank these days, but they’re still far higher than the interest offered by bonds.
To find quality stocks that pay off, one must first look for strong, well-run companies, as with any investment.
In fact, it’s easier to recognize a title that shouldn’t be touched.
A heavily indebted company that pays shareholders money is doubtful, just like a company that does not keep enough of its profits for itself to ensure its development.
Five expert recommendations
One of the top managers in this niche in the country is from Quebec. Steve Belisle manages the best-in-class Manulife Canadian Dividend Growth Fund.
In this area, a good manager looks for companies capable of increasing their dividends regularly. Steve Belisle kindly shared five recommendations:
- Fortis. This Saint John, Newfoundland-based company dominates the gas and electricity distribution industry in North America. The company offers a dividend rate: 3.9%.
- Shaw Communication. A cable company that provides internet, cell phone and television services from Ontario to British Columbia. Dividend rate: 5.2%.
- Intact Financial Corporation. According to Steve Belisle, the Quebec insurer easily dominates its competitors on all fronts. In addition to regularly improving its dividend, the company is invading new markets. Dividend rate: 2.2%.
- Morneau Shepell. Canadian company well versed in human resources management. “The company is very stable and showing a lot of growth in the United States,” according to the manager of Manulife. Dividend rate: 2.5%.
- Bsr. This is a Real Estate Income Trust (REIT). This Canadian company operates an extensive network of chic and affordable apartment buildings in the southern United States, where there is a significant flow of migration. Payout rate: 4.5%.
Although it provides income, this category of shares does not play the same “stabilizing” role in a portfolio as bonds. If the stock market were to crash, these securities will also be affected, but much less than others, inflated with helium, as it currently abounds.