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Struggling to figure out how to build a portfolio of quality dividend growth stocks?

TULF it out. That's a mnemonic from dividend investing guru Tom Connolly, not a wisecrack. T stands for telecoms, U for utilities, L for low-yielding dividend stocks with growth potential and F for financials.

There are 68 dividend-paying stocks in the S&P/TSX Dividends Aristocrats Index and many more in the broader S&P/TSX composite index. Mr. Connolly, publisher of The Connolly Report, says investors seeking dividend growth should start narrowing their choices down by avoiding high-yielding dividend stocks. There's no set definition of a high yield, but let's say anything in the 6 per cent range or higher. Next, remove energy and mining stocks from your list. "Generally, you don't buy cyclical stocks if you're a dividend investor," Mr. Connolly said.

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Now, apply the TULF principle. Telecoms to look at include Canada's Big Three in this sector, BCE Inc., Rogers Communications and Telus Inc. Longtime dividend growers in the utilities sector include Fortis Inc., Emera Inc. and Canadian Utilities. In the category of low-yield dividend growth stocks, Mr. Connolly includes companies like Canadian National Railway and Metro Inc. Both have low yields – CNR at 1.8 per cent and Metro at 1.3 per cent. However, both have been strong dividend growers over the years. There are 27 stocks in the S&P/TSX capped financial index, but the Big Six banks are the ones that stand out for dividend growth.

Dividend reinvestment plans help you build wealth by turning your quarterly cash payments into more shares, but Mr. Connolly has never used them. "I liked to let the money [from dividends] accumulate in my account and then buy a stock that is down in price," he said.

Want to help a young investor get started with dividends? "Their first stock should be one of the three telcos," Mr. Connolly said. "And then a utility." Mr. Connolly's first taste of dividend investing as a young man was the initial public offering of TransCanada Corp., which back then was known as TransCanada PipeLines. His favourite holding over the 32 years he's been writing about dividend stocks in his newsletter? "The telecoms. They're the stocks that I like the most and that have done the best."

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