Once in a while, investors find themselves with a cash windfall.

The money could be from a bonus at work, a gift from a relative, or even the result of a rebalancing of the portfolio.

Paying off credit cards should be the first priority. After that, an investment in top-notch dividend-growth stocks might be the best use of the funds.

Here are the reasons why I think Royal Bank of Canada (TSX:RY)(NYSE:RY) and Agrium Inc. (TSX:AGU)(NYSE:AGU) look like top picks right now.

Royal Bank

Royal Bank earned just under $10 billion in profits last year. That’s not too shabby considering the industry is supposed to be facing some economic headwinds.

What’s the secret?

Royal Bank has a diversified revenue stream with its strong Canadian retail group, large capital markets division, growing insurance business, and successful wealth management operation. The company is also building its presence in the United States with the recent acquisition of California-based City National. At US$5 billion, the purchase is a big bet, but it gives Royal Bank a great platform to expand its reach in the private and commercial banking segment south of the border.

Some investors are concerned the oil rout and a housing bubble will hit the Canadian banks. Royal Bank is increasing its loss provisions connected to the energy sector, but direct exposure to oil and gas companies represents less than 2% of the total loan book.

On the housing side, Royal Bank’s Canadian residential mortgage portfolio is very healthy and capable of riding out a downturn in the market.

The company has a long history of dividend growth, and the current payout yields 4.2%.


Agrium is an interesting company because it operates in both the wholesale and retail sectors of the global fertilizer industry.

The integrated structure makes the business less volatile than the pure-play wholesale producers, and that is why the stock is holding up so well despite the rout in the broader fertilizer space.

Agrium produces nitrogen, phosphate, and potash for wholesale buyers and sells seed and crop protection products to global farmers. Commodity prices have been under pressure in the past year as a perfect storm of low crop prices, volatile currencies, and increased competition hit the market.

The pain is expected to continue in the short term, but the fundamentals look good when you look beyond the current cycle.


Food demand is expected to increase significantly in the coming years, driven by population growth and a rising global preference for meat. As a result, farmers will be forced to squeeze more production out of their fields, and the best way to do that is to load them up with fertilizer.

Agrium reported strong 2015 results. Net earnings for the year came in at US$988 million, up from US$798 million in 2014. Both the wholesale and retail businesses performed well despite weak prices and challenging conditions in the retail market.

Agrium is a cash machine. Free cash flow came in at US$8.59 per share last year, which easily covered the dividend. In fact, Agrium currently pays out US$3.50 per share per year, so there is significant room for growth in the distribution.

The stock has pulled back to the point where it now looks quite attractive, and new investors can pick up a 4% yield while they wait for the cycle to turn in the fertilizer space.

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Fool contributor Andrew Walker has no position in any stocks mentioned. Agrium is a recommendation of Stock Advisor Canada.