Canadians are searching for quality stocks to buy inside their RRSP accounts.
Let’s take a look at Royal Bank of Canada (TSX:RY)(NYSE:RY) and Fortis Inc. (TSX:FTS) to see if one is more attractive today.
Royal Bank
Royal Bank generated nearly $10 billion in profit last year and is well on its way to blow through the milestone in 2016.
The strong results can be attributed to the bank’s diversified revenue stream.
Royal Bank relies on its Canadian personal and commercial banking operations for a good chunk of its income, but the company also has strong wealth management, capital markets, and insurance divisions that contribute to the mix.
With headwinds on the horizon in the Canadian market, Royal Bank is turning to the U.S. to boost growth and recently spent US$5 billion to purchase City National, a commercial and private bank based in California.
The deal gives Royal Bank a solid platform to expand its presence in the segment, and investors could see further acquisitions in the coming years.
Some pundits are concerned the oil rout and a frothy housing market will hit the Canadian banks. Royal Bank’s oil and gas loans represent about 2% of the total loan book, so there isn’t much to worry about on that front. As for housing, the company has a large mortgage portfolio, but house prices would have to fall significantly before the bank takes a material hit.
Royal Bank just raised the dividend. The new quarterly payout of $0.83 per share yields an attractive 4.1%.
Fortis
Fortis owns natural gas distribution and electricity generation assets in Canada, the United States, and the Caribbean.
The company has a strong track record of growing through strategic acquisitions, and that trend continues today.
Fortis is in the process of buying ITC Holdings Corp., the largest independent transmission company in the United States, for US$11.3 billion. The stock initially sold off on the news as investors worried about the size of the deal, but the market is now more comfortable with the transaction, and the shares have recovered their losses.
Fortis gets 94% of its revenue from regulated assets. This means cash flow should be reliable and predictable, which is very important for dividend investors.
The company has raised its dividend every year for more than four decades, and shareholders should see the payout grow at least 6% per year through 2020. The current distribution yields 3.5%.
Is one a better RRSP pick?
Both stocks are strong long-term holdings for any RRSP account. Earlier in the year I would have picked Fortis as the first choice, but the rally in the stock has probably wiped out the advantage.
At this point, I would call it a draw between the two companies.
