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Dividend investing in Canada: A recipe for a good night’s sleep

One of the more difficult truisms to internalize when it comes to DIY investing is that your behaviour will often matter more than the actual performance of the assets that you are investing in.

The simple and intuitive nature of investing in the best Canadian dividend stocks and watching a tax-efficient stream of dividends roll into your brokerage account is enough to keep many investors on track no matter how stormy the economic weather gets.

The truth is that while many of us think that we can keep a cool head as we see the stock market meltdown – most of us are actually terrible at trying to time the market. Our brains are simply hardwired to avoid loss; consequently, when we see our portfolios shrink by 30 per cent+ we panic – right before selling at the worst possible time.

Dividend investors on the other hand have two major advantages working on their behalf.

1) They are focused on the yield of the stocks as their main investing metric. While stock prices can gyrate up or down in the short term, dividend all-star companies really prize keeping their dividend payout steady in all conditions. Concentrating on this stable number helps investors avoid adrenaline-fuelled bad ideas.

2) While stable dividend-paying companies can cut their dividend, most companies are loath to do so. Consequently, most companies that commit to paying a solid dividend are evidence that management has faith in the company’s ability to spin-off free cash flow for the foreseeable future. This means that while dividend-heavy companies might not grow at nearly the rate of the latest tech startup, they should be inherently less volatile.

Don’t get me wrong, it’s not that Canadian dividend stocks are going to outperform all of the other great stocks on the Toronto Stock Exchange. Shopify is a great example of a stock that has seen incredible growth rates without ever ending up on a Dividend Aristocrat list. For most people though it’s not about the total return on their stock portfolio – it’s about controlling their behaviour during the most stressful times – that ultimately decides the size of the nest egg that they end up with.

It also helps that Canada’s medium-sized stock market is full of mature companies with high profit margins and durable competitive advantages. Whether you’re talking about Canadian telecoms, banks, utilities, pipelines, or railways, the oligo-polyesque characteristics (along with government protection from large foreign competitors) allow Canadian shareholders to enjoy very secure streams of dispersed profits.

If you’re looking for investments that will let you sleep at night, then Canadian dividend stocks (and their tax-friendly income streams) might be just what the money doctor ordered.

Kyle Prevost is a financial educator, author and speaker. When he’s not on a basketball court or in a boxing ring trying to recapture his youth, you can find him helping Canadians with their finances over at