Canadians are constantly searching for top picks to put in their dividend portfolios.
TD is an absolute powerhouse in the Canadian financial sector.
The company earned $2.2 billion in adjusted earnings in the most recent quarter, which is up a solid 6% over the same period last year. The strong results are impressive given the economic headwinds facing the Canadian banks and are a testament to TD’s ability to manage costs during tough times.
TD gets about 90% of its earnings from retail banking, which tends to be less risky than other sectors of the business. The Canadian operations are the bread and butter of the earnings mix, but the U.S. retail group is also doing well. When converted to Canadian dollars, earnings from the American operations jumped 20% year over year in the first quarter.
Some investors are concerned the oil rout and a potential housing bubble will hammer the banks. Loss provisions are certainly heading higher on the energy side, but oil and gas loans represent less than 1% of TD’s total loan book, and the Canadian residential mortgage portfolio is more than capable of riding out a downturn in the housing market. Uninsured mortgages represent 45% of the loans and the loan-to-value ratio on that component is a reasonable 59%.
TD has paid a dividend since 1857 and recently raised the quarterly distribution by 8% to $0.55 per share. That’s good for a 4% yield.
A $10,000 investment in TD just 20 years ago would now be worth $197,000 with the dividends reinvested.
Fortis is one of Canada’s top dividend-growth stocks, and recent acquisitions should ensure the trend continues.
Two years ago Fortis spent US$4.5 billion to acquire Arizona-based UNS Energy. The deal expanded the company’s presence in the U.S. market and provided added geographic and regulatory diversification to the revenue stream.
Now, Fortis is spending US$11.3 billion to acquire ITC Holdings Corp., the largest independent pure-play transmission company in the United States.
Fortis delivered record net income of $2.11 per share in 2015, up 20% over the previous year. Much of the growth came from UNS Energy and the company’s expanded Waneta hydroelectric facility in British Columbia. Management expects to close the ITC deal by the end of 2016, so investors should see an accretion to earnings next year.
Fortis has raised its dividend every year for the past four decades and plans to boost the payout by 6% per year through 2020. The current quarterly distribution of $0.375 per share yields 3.8%.
A $10,000 investment in Fortis 20 years ago would now be worth $210,000 with the dividends reinvested.
Which should you buy?
Both stocks are fantastic long-term picks for any portfolio. If you are in the camp of investors who believe the U.S. and Canadian economies are on the verge of a nasty downturn, Fortis is probably a safer choice right now.