Canadian retirees used to rely on GICs and savings accounts to provide interest income as a supplement to their pension payments.
Those days are long gone thanks to the era of low interest rates which looks like it could be with us for quite some time.
As a result, many pensioners are turning to dividend stocks.
Let’s take a look at BCE Inc. (TSX:BCE) (NYSE:BCE) and Bank of Montreal (TSX:BMO)(NYSE:BMO) to see why they should be solid picks.
BCE
Canada’s largest telephone company is also a media giant with a television network, radio stations, specialty channels and sports teams. In addition, the firm owns retail outlets and an advertising business.
When you combine the vast media assets with the world-class mobile and wireline network infrastructure, you get a powerful business.
In fact, any time a Canadian sends a text, downloads a movie, watches the news, or checks e-mail the odds are pretty good that BCE is involved in the process somewhere along the line.
On top of this, the company is expanding its reach with the $3.9 billion purchase of Manitoba Telecom Services.
Some pundits think regulators will block the deal, but I suspect it will be approved. BCE has agreed to sell part of the MTS mobile assets to Telus in order to address competition concerns, and the company says it will spend $1 billion over the next five years to upgrade the MTS network.
Currently, BCE pays a quarterly dividend of $0.6825 per share, leaving it with a yield of 4.35%.
To be sure, the stock isn’t that cheap at nearly 20 times trailing earnings, but you get a reliable name that normally holds up well when the broader market hits some turbulence.
Bank of Montreal
Bank of Montreal is often overlooked in favour of its larger peers, but the stock probably deserves more respect.
The company has a diversified revenue stream with strong operations both in Canada and the United States. The American business provides a nice hedge against weakness in Canada and includes more than 500 branches primarily located in the U.S. Midwest.
Bank of Montreal recently purchased GE Capital’s transport finance division. The addition of the assets should strengthen the company’s commercial lending group.
With each dollar of profit earned south of the border now converting to CAD$1.30, the company is seeing solid numbers out of the United States. Adjusted net income from U.S. personal and commercial banking rose 27% in fiscal Q2 2016.
Bank of Montreal has paid a dividend every year since 1829. The current distribution offers a yield of 4%.
Which stock should you buy today?
Both BCE and Bank of Montreal are solid long-term holdings for a TFSA. If you only have the cash to buy one, I would give the nod to BCE right now for its higher yield and greater stability during times of volatility in the global financial market.
