Balancing High Dividend Yield with Risk

The Canadian banks have generally been a great place for long term investors seeking yield to invest over time. Picking any of these stocks years ago has proven to be an excellent vehicle for not only capital appreciation, but also dividend growth, as most banks attempt to raise their distributions in high single digits to low double digits each and every year (barring a global slowdown).

Canadian banks are prominently known as steady assets, and many investors place their hard earned savings into equity positions in any one of the "big 6" banks, many believing these assets carry very low risk and very reasonable income over time.

I like Canada's banks for the income they provide, however I am in the camp which does believe that more risk exists than many are willing to realize at this point in the cycle.

Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM), for example, is highly tethered to the Canadian residential mortgage market, something I see of a potential red flag for long-term investors looking to get in at this point in the cycle.

Other banks, like Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) have written off losses related to foreign subsidiaries which have undergone unfavorable audits with regulators in the past.

For investors considering dividend-yielding equities, consider the risk profile of investments in a particular sector before jumping in with two feet.

My top two picks in the Canadian banking sector happen to be Royal Bank of Canada (TSX:RY)(NYSE:RY) and Toronto-Dominion Bank (TSX:TD)(NYSE:TD), specifically for the relative safety and diversification these banks possess.

Invest wisely, my friends.