How To Build a Dividend Portfolio in Canada 2023

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If you’ve followed MDJ for a while, you’ll know that I’m a fan of two investment strategies. Index Investing and through investment of income Canada’s Best Dividend Stocks.

I love index investing (also known as passive investing) for its simplicity, low cost, and ability to beat more active mutual fund returns over the long term. I use this strategy: Spouse RRSP; My international area RRSP; and, Education Fund (RESP) I set up for my two children.

Dividend growth investing is a different beast altogether, but if executed correctly, it has the potential to beat long-term market returns with less risk than index investing. As we enter 2023, I believe some of these Canadian dividend stocks will Best Inflation Hedge Stocks as well as

As I have over invested my money over the years (N Smith Maneuver (The portfolio alone fetches a substantial six figures at this point) I’ve spent significantly more time researching Canada’s dividend darlings.

I used that time to set up my own watch list on Mike Heroux Dividend Stocks Rock Site. I’m a big fan of not only Mike’s analysis, but his monthly webinars and his newly created unique Canadian site.

There’s something appealing about the idea of owning a piece of one of the best companies out there, getting paid to own them, receiving an annual salary, and putting very little effort into the process. This is literally the definition Passive income. That’s the cherry on top Canadian dividends receive preferential tax treatment (for now).

A reader question I often get is, “What dividend stocks should I buy?” I’m a little afraid of that question because I believe in picking dividend stocks as part of an overall dividend portfolio strategy rather than trying to buy a couple stocks for a big hit.

If I start with a few, the List of Dividend Kings My first place to visit. The second place I go is the overlooked stocks that are part of me Dogs of the TSX Strategy.

Table of Contents

Building a Dividend Portfolio for Beginners

Having said that, what stocks would I pick to build a diversified dividend portfolio? Here are the criteria I review when making a purchase:

Sector diversification – Since most of our portfolio is Canadian based, I try to diversify by picking dividend stocks by sector. Some people use broader fields, but I tend to use: telecommunication; Pipes; Banks; Resources and materials; applications; Health care; Retail sales; Industrialists; estate; and, Technology.
Dividend growth history – As mentioned earlier, I follow a dividend growth investment strategy, which means I choose dividend stocks that have a history of increasing their dividend annually.
Revenue history – Even with a history of solid dividend growth, the safest bet is to ensure that their earnings continue to grow at the same rate. That could be a warning flag if earnings fall while the dividend increases. It may only be a matter of time before the dividend is reduced or worse eliminated.
Yield above 2% (But the high yield can be a warning) – As my plan is to eventually live on dividends one day, I’d like to have a yield greater than 2%. Ideally, the yield will be greater than 2.5%, but less than 6%. Why not higher yields? Generally, if a dividend stock averages in the 3% range for a long period of time and then rises above 6%, that could be a sign that a dividend cut is coming, as the high yield is unsustainable. On the other hand, it means it’s oversold and a value play. It really depends on the situation, which means more research is needed about the company.
Market Cap – My main dividend positions are generally large market cap companies (i.e. large company) with a long history of dividend increases and long-term competitive advantages.

Dividend Stocks Rock makes setting up your initial portfolio easy because Mike breaks down all the sectors for you and encourages you not to overdo it in any one direction.

Strong dividend stocks by sector

Here are the ones Some My favorite dividend stocks, sorted by sector. Please note that these are not recommendations and should be used for informational purposes only. Note that this portfolio is Canadian-biased, so if you need more diversification, you should take more US and international positions. Personally, I usually use one ETF to diversify my portfolio With international exposure.

One more thing, all of the positions below don’t quite match the criteria I listed earlier. So it’s best to use this list as a starting point for your research.

telecommunication – BCE ( BCE ), Telus ( T ), Rogers ( RCI.B ), AT&T ( US: T ), Verizon ( US: VZ ), Cogeco Communications, Inc. (CCA.TO), Cogeco Inc. (CGO).
Pipes – Enbridge (ENB), TransCanada Corp (TRP), Pembina Pipeline (PPL).
Finance – Any Large bank holdings: Royal Bank (RY), Toronto Dominion Bank (TD), Bank of Scotia (BNS), Bank of Montreal (BMO), CIBC (CM), National Bank (NA), Canadian Western Bank (CWB); Insurance: Manulife (MFC), Great-West Life (GWO), Sunlife (SLF).
Resources and materials – Suncor (SU), Agrium (AGU), Exxon (US: XOM ), Chevron (US: CVX ), Imperial Oil ( IMO.TO ) Canadian National Resources Ltd ( CNQ.TO ), .
applications – Fortis (FTS), Canadian Utilities (CU), Emera (EMA), Brookfield Infrastructure Partners (BIP.UN), Algonquin Power and Utilities Corp (AQN), Power Corp (POW), Atco Ltd. (ACO.X.TO) )
Health care – Johnson and Johnson (US: JNJ), AbbVie (US: ABBV), Cardinal Health (US: CAH).
Consumer and Retail – Empire (EMP.A), Loblaws (L), Walmart (US: WMT), Proctor and Gamble (US: PG), Metro Inc. (MRU.TO), Saputo Inc. (SAP.TO), CCL Industries Inc (CCL.B.TO), Transcontinental Inc. (TCL.A.TO).
Factories – Canadian Pacific Railway (CP), Canadian National Railway (CNR), Finning International (FTT), Emerson Electric (US: EMR), Toromount Industries Ltd. (TIH).
Technology – Microsoft (US: MSFT), Intel (US: INTC), Apple (US: AAPL).
Real Estate – Riokan (REI.UN), Canadian Real Estate Trust (REF.UN), Smart REIT (SRU.UN).

Building Your Portfolio with Dividend ETFs

If you are interested in dividend investing but not interested in picking individual stocks, the next best thing is to own a dividend ETF. The only downside to owning Canadian-based dividend ETFs is that you can focus on a specific sector, such as financials in Canada.

Here’s an article that summarizes a lot Canadian Dividend ETFs. ETFs include:

S&P/TSX Canadian Dividend Lords Index Fund (CDZ) (MER: 0.67%)
Dow Jones Canada Select Dividend Index Fund (XDV) (MER: 0.56%)
FTSE Canadian High Dividend Yield Index ETF (VDY) (MER: 0.22%)
BMO Canadian Dividend ETF (ZDV) (MER: 0.39%)

Since that article, PowerShares has released a very attractive dividend ETF — trading symbol PDC. It tracks the NASDAQ Select Canadian Dividend Index, and charges an MER of 0.50%. What I like about this ETF is that it has less exposure to financials than others and includes exposure to real estate through real estate investment trusts (REITs).

If you want to go the route of ETFs, I highly recommend you visit their respective websites to see the sector exposure you are getting. Most of them have very little real estate exposure, so you can add a REIT or two depending on your current real estate exposure.

Find the best free ETF brokers in Canada

Check out our comprehensive Canadian broker analysis

Real Estate Investment Trusts (REITs)

I have written about REITs In the past and have had some big Canadian names in my TFSA for quite some time. Although REITs typically have higher than average distribution yields, they do not seem to increase annual dividends. The exception is Canadian Real Estate Investment Trust (REF.UN) which has a respectable 15 years.

Instead of choosing individual REITs, you may want to use a REIT ETF instead. Some of the available options include:

iShares S&P/TSX Closed-End REIT Index ETF (XRE) (MER: 0.61%)
FTSE Canadian Capped REIT Index ETF (VRE) (MER: 0.39%)
BMO Equal Weight REITs Index ETF (to tear) (MER: 0.61%)

However, to me, these REITs charge a little for very few holdings. For example, 16 holdings in XRE is not as good as 19 holdings in VRE/ZRE. The top 10 holdings of each of these ETFs account for 75% of the total ETF holdings.

Personally, I prefer to pay 0% MER and gain semi-close tracking of the REIT index by owning the top 5 holdings – REI.UN; HR.UN; CAR.UN; SRU.UN; AND, REF.UN. Holding these positions will give you 55% of the REIT index.

You can also read my comparison between Owning individual REITs and REIT ETFs Before making your choice.

Starting a Dividend Portfolio – Frequently Asked Questions

How many shares should I own?

You should be exposed to multiple disciplines and geographic backgrounds, probably somewhere in the vicinity of 15-25 companies, read our Dividend Stocks Rock Review For a complete breakdown on this question.

Is yield the most important thing in dividend investing?

Yields are always good, high yields are even better! Actually growing dividend yield is the most important thing in the long run though. The only way for a company to consistently grow its dividend per share (EPS) and show a consistent commitment to rewarding shareholders is to keep the dividend yield growing.

How can I ensure that my dividend portfolio is a good hedge against inflation?

With inflation in Canada hitting a 30-year high, that’s a big ask. Fortunately, dividend investing is a great way to do it Protection against inflation. In fact, when stock prices fall, it’s a great time to focus on dividend-paying stocks.

Categories that are good bets in a hyperinflationary environment are oil and gas and commodities. You will want to search for companies Extensive trench systemsIt usually has a ton of pricing power.

Building a Canadian Dividend Portfolio for Income

You also have a summary of how I pick dividend stocks and a list of current favorites by sector. This will give you a general idea of where to start when looking for quality dividend names in Canada and some positions in the US. As another disclaimer, many of the posts mentioned in this article are my own.

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