TransCanada Corporation (TSX:TRP)(NYSE:TRP) and Telus Corporation (TSX:T)(NYSE:TU) are both great dividend-growth stocks.
Let’s see if one deserves to be in your RRSP right now.
TransCanada
TransCanada took one on the chin in 2015 when President Obama rejected the company’s Keystone XL pipeline. That event combined with a brutal slide in oil prices chased investors out of the stock until the sell-off got to the point of being way overdone.
Bargain hunters started to move back into the name six months ago, and the stock has rallied 35% over that time frame.
Here’s why I think more gains are on the way.
TransCanada has $13 billion in near-term projects on the go that should be completed and in service by 2019. As the new assets go online, revenue and cash flow should increase enough to support annual dividend growth of 8-10% through 2020.
TransCanada is also expanding through acquisitions. The latest deal is a US$13 billion move to purchase Columbia Pipeline Group. The purchase give TransCanada a strong foothold in the attractive Utica and Marcellus shale plays as well as a key pipeline network running from Appalachia to the Gulf Coast.
Keystone is on the shelf for the moment, but a Republican win in the 2016 election could quickly put the project back on track. Here in Canada, TransCanada’s Energy East pipeline still has a chance of getting the green light. I don’t think the potential growth from either of these assets is fully reflected in the share price right now.
The stock currently pays a quarterly dividend of $0.565 per share for a yield of 4%.
Telus
Telus has carved out a cozy and profitable niche in the Canadian communications industry.
The company has resisted the temptation to dump billions of dollars into media assets and is instead investing in network upgrades and the growing Telus Health business.
Telus also directs significant funds toward ensuring it delivers the industry’s best customer service. That strategy appears to be paying off as mobile, TV, and Internet subscriber numbers continue to grow.
The company consistently boasts the lowest mobile churn rate in the sector, and mobile users have increased the amount they spend per month for 22 straight quarters on a year-over-year basis.
Investors are reaping the benefits through share buybacks and dividend increases.
The stock currently offers a yield of 4.4%, and management plans to hike the quarterly payout by 7-10% per year through 2019.
Which should you buy?
Both stocks are great long-term RRSP picks. If you want a safer play with a slightly better yield, go with Telus. If you are willing to accept a bit more risk, TransCanada probably offers more upside potential right now.
