Canadians are searching for top stocks to add to their RRSP holdings.
TransCanada is struggling to get its large pipeline projects approved, but investors should focus on the other parts of the business when evaluating the stock.
The company recently acquired Columbia Pipeline Group for U.S. $13 billion in a deal that gives TransCanada an additional 5,400 km of natural gas pipelines, as well as valuable assets in the Marcellus and Utica shale plays.
The purchase also boosts the size of TransCanada’s near-term development portfolio of small to medium projects to $25 billion. As these assets are completed and go into service, revenue and cash flow should increase enough to support annual dividend growth of at least 8% for the next few years.
Regarding the mega projects, Keystone XL and Energy East might still see the light of day. A Trump win in the U.S. election would potentially put Keystone back in play after President Obama rejected the project.
Here in Canada, the recent resignation of panelists on the National Energy Board (NEB) dealt another blow to Energy East. Progress is slow on the project and more delays should be expected, but the government appears committed to get Canada’s oil to international markets. As such, the pipeline could still get the green light in the coming years.
At some point, I think either Keystone or Energy East will be built.
TransCanada currently pays a quarterly distribution of $0.565 per share that yields 3.6%.
Bank of Montreal
Investors often skip Bank of Montreal in favour of its larger peers, but the bank is an attractive pick right now.
Bank of Montreal has a balanced revenue stream with retail operations on both sides of the border, as well as strong capital markets and wealth management businesses.
The U.S. division has been the star in recent quarters. In fact, adjusted net income from the group jumped 22% in fiscal Q3 2016 compared with the same period last year. The strong U.S. dollar is part of the reason, but Bank of Montreal is also getting a boost from last year’s purchase of GE Capital’s transport finance business.
Bank of Montreal has paid investors a dividend every year since 1829. The current distribution provides a yield of 4%.
Is one a better bet?
Both stocks are solid long-term picks and deserve to be in any RRSP account.
At the moment, I think TransCanada’s dividend-growth potential is better over the medium term. As such, I would make the pipeline company my first choice.