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Now's a perfectly good time to buy stocks. What's stopping you?

Oh, right. That crazy stock market. Bounding ahead in recent days after plunging disastrously just a few weeks ago and making people worry about a repeat of 2008.

That could happen and the potential for such an outcome means that very conservative investors should stay out of the market and stick to guaranteed investment certificates.

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Everyone else, pay attention! There are good things to buy in the stock market now if you can wrap your mind around some key points.

One is that the recent stock market weakness was different than what we experienced in 2008 and early 2009. Big banks and brokerage houses were collapsing back then, the global financial system seized up, the North American auto industry looked doomed and governments were injecting stimulus into their economies like TV emergency room doctors do with patients who are "crashing."

Today, the global economy hasn't decisively turned around yet and those stimulus-pushing governments are themselves strapped in some cases. But compared with 2008, we're doing better. Back then, we worried about whether one or more of our Canadian banks might possibly fail. Today, we wonder when the banks will start raising dividends again (like when, guys?).

Here's the question to ask yourself before you buy: Will I be able to stand it if the stock markets fall hard and the dividend stocks I buy go down in price?

Another point in favour of investing now is that there are plenty of stocks to buy that will give you results, no matter where the market goes.

These results come in the form of dividends. They're paid to you every three months and you can use them to build up cash in your account or pool them to buy new shares through a dividend reinvestment plan.

Proven dividend payers such as BCE, Telus, Emera, Canadian Imperial Bank of Commerce, Power Corp. of Canada, Shaw Communications, and TransCanada Corp. offer yields today from roughly 4.5 to 5.5 per cent. You simply can't get that from guaranteed investment certificates or bonds issued by either governments or financially strong companies.

Here's the question to ask yourself before you buy: Will I be able to stand it if the stock markets fall hard and the dividend stocks I buy go down in price?

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If the answer is no, then go with your gut and leave stocks alone. If the answer is yes, we need to discuss this just a little bit more because people often imagine themselves more risk-tolerant than they actually are.

Read more about dividend stocks:

  • Dividends rise and shine amid recession
  • How to find funds that deliver steady income
  • Payout ratio: A key tool for dividend sleuthing
  • That sweet spot: Reliable returns, just a little risk
  • Five fixes for yield-starved investors

The right mindset for buying dividend stocks right now is to imagine two boxes. One contains your dividend stocks, the other the dividends these stocks pay over time.

To which box should you pay attention? It's Box No. 2, the one holding all those quarterly dividends. As long as this cash is coming in, you know the stocks in Box No. 1 are doing their job.

Human nature dictates that you'll want to check Box No. 1 often to see if your shares are rising or falling in price. Resist the urge as much as you can because the real job of a dividend stock is to pay dividends. Capital gains will take care of themselves over time if you buy quality companies that regularly increase their dividends.

The two-box idea works particularly well with preferred shares, which are sometimes lumped in with bonds and GICs in the fixed-income category. The reason is that the main reason to own them is to receive quarterly dividends. Preferred shares move up and down in price, but not nearly as much as the common shares that everyone means when they talk about stocks.

Preferred shares did get pounded back in 2008-09, but that was because there were legitimate concerns about whether the big financial companies that had issued most of them would survive. We now know they will, which means you can buy these shares, and forget about them while you collect the dividends.

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It must be said that preferred shares have been slipping a bit lately, and they may fall some more in price when interest rates move up significantly. But, um, so what? If you're buying preferreds for a flow of tax-advantaged dividend income, just keep your eye on Box Number Two, where the dividends are.

Yes, it's hard to do. You can tell this by the way people have been selling both preferred and some dividend-paying common shares lately. Both the S&P preferred share index and the S&P Canadian Dividend Aristocrats Index are down a little this year, while the S&P/TSX composite index is up.

There's lots to be nervous about in the stock market today, and there's also the negativity of rising interest rates down the road. And yet, it's still a good time to buy dividend stocks. If you have the right mindset, that is.

Getting Paid To Wait

There are many attractive dividend stocks to buy right now with yields in the 4 to 5 per cent range. Here's an example of how their dividends pay you to wait through stock market downs and ups.

The Stock

The Dividend

Telus , trading around $40

50 cents per quarter, or $2 annually for a yield of 5 per cent

What you can expect

Volatility - Telus is up about 30 per cent this year, but it's down more than 35 per cent over the past three years.

After cutting its dividend in 2001 to 15 cents from 35 cents, Telus has more than tripled it to 50 cents. The dividend has increased annually since 2005.

The Here and Now

Telecom stocks like Telus have been popular this year

The dividend yield of 5 per cent compares to a top rate of 4 per cent for five-year GICs; in non-registered accounts, the after-tax yield is higher thanks to the light touch of the dividend tax credit. Also, the yield on your investment in this stock will rise when the dividend next goes up.

Source: Globe Investor

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About the Author
Personal Finance Columnist

Rob Carrick has been writing about personal finance, business and economics for close to 20 years. He joined The Globe and Mail in late 1996 as an investment reporter and has been personal finance columnist since November 1998. Rob's personal finance columns appear in The Globe on Tuesday and Thursday, and his Portfolio Strategy column for investors appears on Saturday. More

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