In the good, old days, investors could get decent returns from GICs or even savings accounts. Unfortunately, things have changed.
Interest rates have fallen so low that dividend stocks are pretty much the only game in town for investors who want to supplement their pensions or paychecks.
On the surface, this might not seem ideal because stocks come with more risk, but there is a big difference between high-risk dividend payers and ones that tend to be much more stable.
TD earned a cool $2.2 billion in fiscal Q1 2016. Yes, you read it right, that’s more than two BILLION dollars in profits for three months of operations.
The most impressive part is the fact that TD and its peers are supposed to be struggling with challenging economic conditions.
Why is TD so successful?
The bank is widely known for having the best retail operation in Canada and is regularly cited for its high level of customer service. TD’s branch employees are also very well trained in the art of selling new products and services, and that makes a big difference to the bottom line.
Some customers might not appreciate the constant barrage of offerings for new credit cards, home equity loans, or higher credit limits, but investors are all smiles.
There is some concern in the market that the ongoing oil rout will eventually hammer the banks. In the case of TD, there is little to worry about because the company’s exposure to the oil and gas sector represents less than 1% of the total loan book.
TD recently hiked its quarterly dividend by 8% to $0.55 per share. That’s good for a yield of 3.95%.
If you want a solid bank pick with low risk, TD is about as good as it gets.
Fortis operates natural gas distribution and electricity generation assets in Canada, the United States, and the Caribbean.
Much of the company’s recent growth has been in the U.S., including the US$4.5 billion acquisition of UNS Energy two years ago and the recent announcement of the US$11.3 billion deal to acquire ITC Holdings Corp.
Big purchases can be difficult to integrate, but Fortis has a track record of success in this area, and investors should see the trend continue.
The stock is great for income investors because nearly all of the company’s revenue comes from regulated assets. This means cash flow should be both predictable and reliable, which bodes well for sustainable distributions.
In fact, Fortis is one of Canada’s dividend-growth champions. The company has increased the payout every year for more than four decades, and management plans to boost the distribution by 6% per year through 2020.
The current quarterly payout of $0.375 per share yields 3.7%.