Canadians are searching for top dividend-growth picks for their RRSP holdings.
Let’s take a look at Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and Fortis Inc. (TSX:FTS) to see if one is a better RRSP pick.
TD
TD generated fiscal Q2 adjusted net income of $2.3 billion, up a healthy 5% over the same period in 2015. That’s pretty good given the economic headwinds facing the Canadian banks.
The strength lies in the company’s strong retail banking operations on both sides of the border.
Any Canadian who is a TD customer understands why the company does so well. TD’s client-facing employees are always on the lookout for opportunities to boost a credit line, offer a new credit card, or open an investment account.
They do it with a smile and the service is great, so you tend to feel good about the hit. But make no mistake, the focus is on the top-line numbers; every extra additional product that is sold means more cash for shareholders.
The Canadian retail operation is the meat and potatoes of the business, generating more than 60% of net income, but the U.S. division is also worth watching.
A presence south of the border offers investors a hedge against trouble in Canada, and TD is benefiting from the strong greenback; every dollar earned in the U.S. currently converts to CAD$1.30.
TD has a great track record of dividend growth. The company raised the payout by 8% earlier this year, and investors should see steady increases continue.
The current yield is 3.9%.
Fortis
Fortis is a natural gas distribution and electricity generation company with assets located in Canada, the U.S., and the Caribbean.
The company has a fantastic track record of combining strategic acquisitions with organic growth to increase revenue and boost dividends.
Two years ago Fortis purchased Arizona-based UNS Energy for US$4.5 billion. The integration went well and the additional revenue from the new assets enabled a 10% increase in the dividend last year.
Now Fortis is in the process of spending US$11.3 billion to purchase ITC Holdings Corp., a regulated transmission company in the United States.
The ITC deal is expected to close by the end of 2016, and investors should start to see the benefits next year.
Dividend investors like Fortis because it gets most of its revenue from regulated assets. This means cash flow should be both reliable and predictable.
Fortis has raised its dividend every year for more than four decades. The current payout provides a yield of 3.5%.
Is one a better bet?
Both stocks are solid long-term RRSP picks.
The 10-year performance is pretty much equal, and recent rallies mean neither name looks overly cheap right now, so I would consider it a coin toss between the two stocks.
