How to Invest in Canadian Dividend Paying Stocks

There are several Canadian dividend paying stocks that offer competitive yields with a below average price to earnings ratio. When it comes to dividend investing, most investors don't even consider picking companies headquartered in Canada. Much of the focus is usually on US companies that are found on the S&P 500 Dividend Aristocrat Index or financial stocks that offer yields around 5%.

Many of the Canadian dividend paying stocks actually can be purchased on the New York Stock Exchange (NYSE). This makes it much easier for US investors to invest in these companies directly through their online discount broker.

So where does an investor start looking for these top dividend stocks from Canada?

Dividend achievers are stocks that have consistently raised dividend distributions for a minimum of the past 10 years consecutively. Each January, Mergent Inc. publishes their dividend achievers indexes. One index focuses on international stocks, which includes several Canadian dividend paying stocks. Here are a few picks that are found on the index.

• Enbridge Inc (ENB) - This oil and natural gas company currently trades at 22 times earnings with a yield of 3.4%. The company's payout ratio is at 64%.
• Rogers Communications Inc. (RCI) - This wireless communications company trades at 13 times earnings with a yield of 3.4%. The company's payout ratio is at 48%.
• TELUS Corp. (TU) - This wireless communications company trades at 15 times earning with a yield of 4.3%. The company's payout ratio is at 63%.

The nice thing about using the dividend achievers is that each company on the list has a strong track record of dividend increases and positive cash flow. The yields may not be the highest of available stocks, but they are stable and offer future growth.

There are still some great banks to be bought that pay modest dividends. Many of these banks reside from Canadian companies, not the US. Here are some of the top performing Canadian dividend paying stocks that are from the banking industry.

• Toronto Dominion Bank (TD) - This banking stock currently trades at 15 times earnings with a yield of 3.1%. The company has a payout ratio of 47%.
• Royal Bank of Canada (RY) - This banking stock is trading at 15 times earnings with a yield of 3.6%. The company has a payout ratio of 57%.
• Bank of Montreal (BMO) - The company is trading at 12 times earnings with a 4.7% yield. The company has a payout ratio of 72%.

Just as with any other stock pick, there are no guarantees in the market. However, the Canadian banks offer above average yields with low price to earnings ratios.

If you are looking for a higher rate of return, then investing in income trusts may just be for you. There are several Canadian dividend paying stocks that fall into the "trust" category. These stocks offer much higher returns than competing income stocks, but with a much higher risk. Here are a couple well-known income trusts found in Canada.

• Penn West Energy Trust (PWE) - This Canadian trust currently trades at 49 times earnings with a yield of 4.0%.
• Baytex Energy Trust (BTE) - This Canadian trust is currently trading at 39 times earnings with a yield of 4.7%.
• Enerplus Resources Fund (ERF) - This fund currently trades at 42 times earnings with a yield of 6.8%.

Based on the corporate structure of a trust, the payout ratios are typically over 100%. Most income trusts are setup to pay most or all of their earnings in the form of dividends to shareholders.

Canadian dividend paying stocks offer a nice alternative to US companies. There are plenty of different investment opportunities from a variety of industries and business models. Always remember to do your due diligence before investing in any stock.

Full Disclosure - I do not own any stocks listed above at the time of this writing.