Recent volatility in the market has Canadian investors wondering where to put new money.
For those who are just beginning to invest, it is important to pick stocks that are market leaders and operate in sectors with strong barriers to entry. At the same time, the companies should possess solid track records of dividend growth and capital appreciation.
Here are the reasons why I think young investors should consider Royal Bank of Canada (TSX:RY)(NYSE:RY) and Fortis Inc. (TSX:FTS).
Royal Bank
The Canadian banks are supposed to be facing earnings headwinds but you wouldn’t know it by looking at Royal Bank’s results.
The company reported record Q2 2015 adjusted net income of $2.4 billion, a 9% increase from the same period the year before.
Part of the success comes from Royal’s diversified revenue stream. The company derives about 51% of its earnings from personal and commercial banking. The capital markets group contributes about 24%. Wealth management adds 11%, and the insurance division kicks in another 8%. Investor and treasury services provide the remaining 6%.
Royal’s recent US$5.4 billion acquisition of California-based City National Corp. is a signal to investors that the company is clearly focused on expanding its wealth management operations south of the border.
The move should be seen as a long-term positive for investors.
Royal pays a dividend of $3.08 per share that yields about 4.1%. The company has a long history of dividend growth and that trend should continue.
Fortis Inc.
Electricity and natural gas distribution might not sound very exciting, but investors should invest for gains, not entertainment.
Fortis owns electricity and gas utility assets located in Canada, the U.S., and the Caribbean.
The company is constantly on the lokout for opportunities to boost growth and maximize returns for its shareholders.
Last year Fortis paid US$4.3 billion to purchase Arizona-based UNS Energy. The deal is already accretive and balances out the company’s geographic exposure.
Management also knows when to capitalize on opportunities to lock-in investment profits. Fortis recently sold its real estate assets for $430 million and investors could see a nice dividend boost as a result.
Investors like this company because 93% of its revenue comes from regulated assets, which means cash flow and earnings are steady and predictable.
Fortis has increased its dividend every year for more than four decades. The company currently pays a distribution of $1.36 per share that yields about 3.7%.
