There was a period of time when Canadians were all about growth stocks. In fact, it lasted quite a few years. That trend seemed like it would end during the pandemic, but instead Canadians were flooded with cash from staying home and having no where to spend it. Because of this, they put their cash into the market.
However, that market eventually crashed, as we all know. This led to a drop in growth stocks, and a huge rise in dividend investing. So, is that so bad?
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Should you be buying dividend stocks?
In short, absolutely. But does that mean Canadians should be ignoring growth stocks in favour of dividend stocks? Absolutely not. The key is to create a balanced and diversified portfolio. Ideally, one that you don’t have to touch or rebalance often at all.
Instead, investors shouldn’t focus on the kind of stocks they’re buying, but their goals. This is far more than wanting to “retire rich.” Canadians need to perhaps work with a financial advisor to figure out what their goals are, and what it would mean to reach them.
If you’re not sure where to start, an emergency fund is a great place. This is an easy solution as you can aim to create savings of between three and six months of your salary. That way, should anything bad happen like losing a job, you’ll have cash on hand.
How dividends and growth come into play
Here’s how you can use both dividend and growth stocks to your advantage through this method of investing. First, consider a Tax-Free Savings Account (TFSA). That way any returns and dividend income you’re receiving will be tax free. Plus, given it’s an emergency fund, you can take it out at any time without the worry of taxes as well.
Now, first perhaps consider investing in dividend stocks that will offer you long-term, growing income. Ones that have seen that dividend rise again and again, year after year. For this, I would consider looking at blue-chip stocks that hold Dividend Aristocrat status. These would be stocks that have increased their dividend for the last five consecutive years at least.
As for growth stocks, a great option here is to consider the dollar cost averaging method. This method means you’re investing in a stock no matter what’s going on. It’s a great way to get in on growth stocks if you’re worried about paying too much, and don’t want to miss out either.
Two options
Now, of course, I’m going to go ahead and recommend two great stocks to consider. For a dividend stock, consider Canadian Utilities (TSX:CU) right now. Utility stocks offer stable cash flow from long-term contracts. Furthermore, CU stock is a Dividend King. That means it has increased its dividend each year for the last 50 years!
Furthermore, shares are a steal. CU stock is down 16% in the last year as of writing, with a 5.87% dividend yield to boot. So you can look forward to a nice boost out of this downturn, as well as great dividend income that’s only going to grow from here.
As for a growth stock, look to Constellation Software (TSX:CSU) if you have the cash. CSU stock has grown past the $3,000 mark in the last month, growing even as the rest of the tech stocks remain down for the most part. That’s because the company invests in essential software services, ones we use every day without thinking about it.
While shares might be up, it’s still a great long-term deal. And frankly the perfect option among growth stocks for dollar cost averaging. You will be able to buy on dips, while overall it climbs higher and higher. Plus, you even get a little additional 0.17% dividend yield to add to your cash flow. So don’t choose one or the other. Consider both dividend stocks and growth stocks when investing.
