Canadian investors are looking for reliable dividend-growth stocks to help them save for retirement.
Here are the reasons why Royal Bank of Canada (TSX:RY)(NYSE:RY) and Fortis Inc. (TSX:FTS) should be on your RRSP radar.
Royal Bank
Royal Bank generated just under $10 billion in profit in 2015. That’s an impressive feat considering the banks are battling some economic headwinds.
The secret to Royal Bank’s success lies in its balanced revenue stream. Personal and commercial banking represents 52% of earnings, but the bank also gets significant contributions from its capital markets, wealth management, and insurance divisions.
From a geographic perspective, Canada generates 62% of the company’s revenue, The U.S. kicks in 20%, and international operations contribute the remaining 18%.
Royal Bank recently completed its US$5 billion purchase of City National, a California-based private and commercial bank focused on high-net-worth clients.
The addition of the business gives Royal Bank a great platform to expand its U.S. presence, and investors should see stronger contributions from the American operation in the coming years.
Market watchers are concerned the oil rout is going to hit the Canadian banks. Loss provisions have certainly increased, but Royal Bank’s drawn exposure to energy companies represents less than 2% of the total loan book, so the risks are manageable.
Royal Bank has a long history of paying a reliable and growing dividend. The current quarterly distribution of $0.81 per share yields 4.2%.
Fortis
Fortis is a natural gas and electricity utility with assets in Canada, the U.S., and the Caribbean.
The company has grown significantly over the years through strategic acquisitions, and that trend continues.
Fortis spent US$4.5 billion two years ago to buy Arizona-based UNS Energy in a deal that expanded the company’s presence in the United States and added important regulatory and geographic diversification to the revenue stream.
The integration of UNS went very well, and investors are already reaping the benefits. Fortis raised its dividend 10% last fall and delivered a 20% increase in net income in 2015 when compared with the previous year.
With UNS comfortably in the stable, Fortis is setting its sights on an even bigger prize. The company is spending US$11.3 billion to acquire ITC Holdings Corp., the largest pure-play transmission company in the United States.
Fortis has raised its dividend every year for more than four decades, and management plans to hike the payout by 6% per year through 2020.
The current distribution offers a yield of 3.75%.
