2 Reliable Dividend-Growth Stocks for Your RRSP

Here’s why Fortis Inc. (TSX:FTS) and TransCanada Corporation (TSX:TRP)(NYSE:TRP) are attractive picks.

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It’s the height of RRSP season and Canadian investors are looking for top picks to help them hit their retirement goals.

Here are the reasons why I think Fortis Inc. (TSX:FTS) and TransCanada Corporation (TSX:TRP)(NYSE:TRP) are strong choices right now.

Fortis

Fortis operates electricity generation and natural gas distribution assets in Canada, the United States, and the Caribbean.

That doesn’t sound very exciting, but RRSP investors should be looking for reliable names that deliver long-term growth rather than “hot” stocks that come with high risks.

Fortis might be boring, but it delivers great results. The company reported Q3 2015 adjusted earnings of $145 million, or $0.52 per share, up significantly from $0.31 per share in the same period in 2014. Much of the growth is being driven by the integration of the $4 billion purchase of Arizona-based UNS Energy as well as new revenue coming from an expansion at the company’s hydroelectric facility in British Columbia.

Fortis gets about 96% of its revenue from regulated assets, which means cash flow and earnings should be predictable and reliable.

The company recently increased the dividend by 10% and is targeting 6% annual growth in the distribution through the next five years. Investors should feel confident in the projections given the fact that Fortis has raised its dividend every year for more than four decades.

The current payout of $0.375 per share yields about 3.6%.

TransCanada

TransCanada has been in the news a lot and most of the headlines in recent times have not been good ones.

President Obama rejected the company’s Keystone XL pipeline and the Energy East project remains in limbo while costs balloon. Throw in concerns about the oil crisis and you can see why investors fled the stock over the past year, but the market has finally started to clue in that things aren’t that bad and TransCanada’s shares are rebounding as a result.

Why?

TransCanada doesn’t produce oil or natural gas; it simply builds the pipelines to move the product from the producers to the end users. This means it is mostly unaffected by movements in commodity prices.

Most people don’t realize how important TransCanada is to the North American economy. The company actually transports about 20% of all the natural gas used in Canada and the United States every day. Demand for the fuel continues to rise and the distribution network acts as an energy toll road, with revenue and earnings pretty much guaranteed for decades.

The Keystone setback is unfortunate, but TransCanada has $11 billion in smaller projects on the go that will be completed and in service by 2018. These will provide a nice boost to revenue and free cash flow, and investors should see strong dividend growth as a result.

In fact, management expects to raise the payout by 8-10% per year through 2020.

New projects are still coming up, despite all of the anti-pipeline rhetoric. TransCanada recently signed a deal to build a US$500 million pipeline in Mexico, and I think Energy East will eventually get the green light here in Canada, despite the bickering among the provinces and the huge $15.7 billion price tag.

TransCanada also has a large electricity generation business that delivers a very reliable revenue stream.

The stock still looks undervalued and any positive news on Energy East could send it much higher. TransCanada pays a quarterly dividend of $0.52 per share that yields about 4.2%. Even if the share price remains constant, the stock is worth owning for the solid dividend growth.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stocks mentioned.

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