Investors are always on the lookout for great stocks to help them meet their savings goals.
Here are the reasons why I think Telus Corporation (TSX:T)(NYSE:TU) and Royal Bank of Canada (TSX:RY)(NYSE:RY) are solid picks.
Telus might be the best pick right now in the cozy telecom sector.
The company is the country’s fastest-growing national telecommunications provider, adding new wireless, TV, and Internet subscribers at a healthy clip.
The growth can be attributed to the company’s strong commitment to customer service as well as its competitive packages.
All of the phone companies say they care about keeping customers happy, but Telus invests a lot of money in the initiative, and it appears to be paying off. The company has the lowest mobile churn rate in the industry, and customers have increased the amount they spend for 21 straight quarters on a year-over-year basis.
Telus is about to pick up a third of the wireless customers and dealer locations held by Manitoba Telecom Services Inc. (MTS) in a deal reached with BCE, which is buying MTS.
Telus also has a health division that is the current market leader for providing online claims and benefits solutions to Canadian hospitals, physicians, and insurance companies.
All in, Telus is a very profitable business. The company generated $1.1 billion in free cash flow in 2015, and management is quite generous when it comes to handing out the profits to shareholders.
The stock currently pays a quarterly dividend of $0.44 per share, which yields 4.4%.
Royal Bank is another earnings machine. The business generated just under $10 billion in profits last year, and the strong results continue, despite the difficult economic conditions facing the banking sector.
A diversified revenue stream is a big reason for the success. Royal Bank relies heavily on its Canadian retail banking franchise, but it also has strong wealth management, capital markets, and insurance divisions that help balance out revenues.
Moving forward, investors should see growing contributions from the United States. Royal Bank recently acquired City National, a California-based private and commercial bank known for its high-net-worth client list. The deal gives Royal Bank a great platform to expand its reach in the United States, and that should help offset any weakness that might be on the way here in Canada.
Some investors are concerned the Canadian banks are in for a rough ride when house prices finally cool off. Royal Bank’s Canadian mortgage portfolio is large, but uninsured loans represent just 54% of the holdings and the loan-to-value ratio on that component is 55%. This means the housing market would really have to fall out of bed for Royal Bank to see a material impact.
Oil loans are also on the minds of investors, and Royal Bank has increased its loss provisions in the sector, but direct exposure to oil and gas companies represents less than 2% of the bank’s total loan book.
Royal Bank recently increased its dividend by 3%. The current quarterly payout of $0.81 per share yields 4.2%.