We have a fantastic guest blogger – Jane Koval! Jane Koval is a freelance writer. Her interests range from the latest e-Commerce trends to traditional folk culture and adventurous traveling. She always stays open to new ideas and expertise to make her writings handy and captivating for the readers. In addition – she has been great to work with and her writing is detailed with great sources for her information. What better topic then about Dividend Investing? Here she talks about why you may want to try Dividend Investing in Canada!
Should You Try Dividend Investing in Canada?
Dividend investing is a great investment strategy that brings in a steady stream of income. It’s also tax-efficient, which makes this strategy more lucrative over time. However, even if your dividend investment portfolio is good, you should consider diversifying it to not only increase your income but also reduce the overall risks. The best way to diversify your dividend investment portfolio is to add foreign dividend stocks and ETF. Canada is a very attractive destination for this specific purpose at the moment, according to Bloomberg.
Benefits of Investing in Canadian Dividend Stocks and ETFs
Lowering the portfolio market risk is one of the main benefits of investing in foreign dividend and ETF stocks in the first place. However, this step is a risk in and of itself, so it’s imperative to choose the destination for this investment carefully. Canada currently looks like a highly lucrative choice in terms of yields.
Canadian stocks might not be the best paying on the planet, but they are dependable, which is a far more important advantage for an investor. Compared to the US stocks, Canadian are higher and you get to enjoy more tax benefits when buying them. But you’ll have to do your due diligence with utmost care in order to be sure that you are making the right decision.
Best Dividend and ETF Stocks in Canada Today
The yield from both Canadian dividend stocks and ETFs should be higher, compared to the US. However, if you are only starting to expand your portfolio into this new direction, you should consider investing in dividend ETFs in Canada first. You should be able to manage them without any trouble even with limited experience. They also have a slightly lower risk factor.
At the moment, some of the best dividend paying ETFs in Canada include:
1. S&P/TSX Canadian Dividend Aristocrats Index Fund (CDZ)
2. iShares Canadian Select Dividend Index ETF (XDV)
3. FTSE Canadian High Dividend Yield Index ETF (VDY)
4. BMO Canadian Dividend ETF (ZDV)
5. iShares Core MSCI Canadian Quality Dividend Index ETF (XDIV)
These options vary quite a bit in their requirements of finance and MER. Therefore, you should be able to find a good fit for you personally regardless of which investment style you prefer or what kind of an investment portfolio you have.
When choosing the best dividend stocks in Canada, you should be looking for something that has consistently increasing yields. However, it’s no less important for the dividend portfolio to offer variety as a means of reducing risks.
Some of the top options to consider now are:
1. Canadian Western Bank (CWB)
2. Canadian Utilities (CU)
3. Fortis Inc. (FTS)
4. Toromount Industries Ltd (TIH)
5. Thomson Reuters (TRI)
Note that when researching Canadian dividend stock options you’ll see that the majority of them have a rather spotty history of yields. Therefore, you should be very thorough with your due diligence if you want to keep your risks at the minimum.
However, considering the current global economic situation, the risks will remain rather high no matter what. So, focus on the predictions for every individual option and do your best to extrapolate how it will change with the major economic events, such as a shift of power in the Trade War between the US and China. Such events affect everyone, regardless of the location.
Therefore, investors need to be more careful and thorough than ever.
Currency Risk to Consider When Investing in Canadian Dividends
Investing in foreign dividend stocks means you are exposing yourself to the currency risk. This is inevitable when you deal with any foreign currency, but it’s also not something that should stop you In fact, the yields you can get from foreign stocks usually outweigh this risk significantly.
Of course, this doesn’t mean that you should overlook it completely. Instead, you should research the predictions for the currency you plan to invest in. Those can’t be 100% accurate, but nothing in this business ever is. Therefore, the best you can do is to study every source you can and make a decision based on this information and your own plans for the future of your dividend investments.
Currency risk is a volatile factor because there are so many things that influence it, including the local and global economy. You cannot affect any of these major factors, so you should take your time to do research and think about this decision. It might be too late to fix anything if you choose wrongly now.
The good news is that as the situation stands now, CAD stands rather strong and has a good future ahead of it, according to the National Bank of Canada predictions. Also, the CAD-USD currency pair will be greatly impacted by the changes in Trade War between the US and China.
Prospective dividend stock investors should also be happy to hear that despite the uncertainty associated with the elections, CAD is set to keep growing steadily. You should also be aware that the upcoming climate policies can have a major impact on this currency. And it’s yet impossible to determine the scope of this impact and the changes it will cause.
However, with how promising and solid the Canadian dividend stocks generally are, this definitely is a risk worth taking. Even if the currency rates change unfavorably in the nearest future, this change shouldn’t be truly devastating for your investment.
Canadian Dividend Stock Investing: In Conclusion
If you want to diversify your portfolio, investing in the Canadian dividend and ETF stocks can be very beneficial. These are good stocks with a steadily growing yield. But most importantly, they are stable, which means that you get to reduce the risks.
You won’t be able to avoid or even control the currency risk to any significant degree, however. Therefore, it’s essential that you make some research and calculations to get some idea about what you stand to lose exactly.
Do not rush and decisions and be sure to do your due diligence for every single point. This will take time, but it’s the only way to be reasonably sure that this investment is a step toward your financial success or ruin.