Investors are looking ahead to 2016 and wondering which companies are the best picks for their income portfolios.
The rout in the commodity space has wiped out many of the former dividend darlings, and the majority of those names could be headed for more pain next year.
Given the uncertainly facing the market in the coming months, I think investors should consider Bank of Montreal (TSX: BMO)(NYSE: BMO) and BCE Inc. (TSX: BCE)(NYSE: BCE) right now.
Bank of Montreal
The economic headwinds facing the banking sector haven’t slowed down Bank of Montreal’s ability to generate solid results.
The company just announced fiscal Q4 2015 adjusted net income of $1.26 billion, up 14% from the same period last year.
Bank of Montreal offers investors a diversified revenue stream that comes from different segments and markets. The company’s Canadian personal and commercial banking operations remain strong, but the secret weapon lies in the United States.
Bank of Montreal operates more than 600 branches in the U.S. Midwest, where an economic rebound is driving strong loan growth in the commercial and industrial sector. The bank also just added GE Capital’s transportation finance business to its portfolio, and that should boost revenue next year.
Adjusted net income from the U.S. division jumped 22% in the fourth quarter.
Some analysts are concerned that exposure to energy companies could begin to hurt the Canadian banks. About 2% of Bank of Montreal’s total loan book is attributed to oil and gas companies, so the exposure is minimal and losses are manageable if the situation continues to deteriorate in the sector.
Bank of Montreal just raised its quarterly dividend to $0.84 per share. The distribution offers investors a safe yield of 4.2%.
BCE
BCE has been a favourite among conservative dividend investors for decades, and there is no reason for that to change.
In fact, the company continues to fortify its dominant position in the Canadian market.
In the past few years BCE has made strategic investments in both retail and the media space. The move away from the core telecom operations initially had some analysts concerned, but management appears to be on the right track.
BCE now owns a television network, radio stations, specialty channels, sports franchises, phone and digital device retail stores, and an advertising business.
The company is also investing in its state-of-the-art mobile and landline infrastructure.
All combined, the portfolio ensures the company is getting a piece of the spending pie all along the value chain.
BCE is a cash machine and it dishes out a generous helping of profits to shareholders. The quarterly dividend of $0.65 per share yields 4.5%.
