2 Dividend-Growth Stocks to Top Up Your TFSA

Here’s why Fortis Inc. (TSX:FTS) and Bank of Montreal (TSX:BMO)(NYSE:BMO) should be on your radar.

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Canadian investors are searching for reliable stocks to add to their TFSA accounts.

Let’s take look at Fortis Inc. (TSX:FTS) and Bank of Montreal (TSX:BMO)(NYSE:BMO) to see if they are attractive picks right now.


Fortis is a natural gas–distribution and electricity-generation company with assets located in the United States, Canada, and the Caribbean.

The company uses strategic acquisitions as well as organic development to grow the business, and investors are reaping the benefits.

Two years ago Fortis spent US$4.5 billion to buy Arizona-based UNS Energy. The integration of the assets went well, and the added cash flow helped support a 10% increase in the dividend last fall.

Fortis also completed the expansion of its Waneta hydroelectric facility in British Columbia last year.

The company is currently in the process of closing its US$11.3 billion acquisition of ITC Holdings Corp., the largest independent transmission utility in the United States. Management says the deal should close by the end of 2016, and investors will start to see the benefits next year.

Fortis pays a quarterly dividend of $0.375 per share for a yield of 3.5%. The distribution has increased every year for more than four decades.

Bank of Montreal

Bank of Montreal recently reported solid fiscal Q3 2016 earnings. Adjusted net income was $1.3 billion, which is up 5% compared with the same quarter in 2015.

Investors often overlook this bank, but the company has a diversified revenue stream that makes it an attractive pick in the current environment. For example, a strong quarter from the capital markets group helped offset a weak year-over-year performance from wealth management.

Canadian retail banking remains the bread and butter of the business, but the U.S. personal and commercial banking division was the star of the show in the latest results. Adjusted net income from the group rose 22%, driven by a strong American dollar and the addition of GE Capital’s transport finance business.

Some investors are concerned about oil loans and the threat of a housing crash.

Bank of Montreal’s energy exposure represents just 2% of the total loan book, so the risks are manageable.

Regarding housing, Bank of Montreal finished fiscal Q3 with $101.2 billion in Canadian residential mortgages. Insured loans represent 57% of the portfolio, and the loan-to-value ratio on the rest is 56%. This means house prices would have to come down significantly before the bank would take a significant hit.

Bank of Montreal has paid a dividend every year since 1829. The current distribution yields 4%.

Is one a better bet?

Both companies are solid long-term holdings for a TFSA account.

I would have picked Bank of Montreal earlier in the year, but the stock has rallied to the point where the advantage has probably disappeared. As such, I would call it a coin toss between the two stocks today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stocks mentioned.

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