Canadians are searching for quality dividend stocks to hold inside their Tax Free Savings Account (TFSA) until retirement.
Bank of Montreal
Bank of Montreal doesn’t get as much attention as its larger peers, but it probably deserves more respect given the balanced nature of its revenue base.
The company has strong personal and commercial banking operations, a wealth management business, a large capital markets divisions, and a growing presence in the United States.
The American operations are of specific interest.
Bank of Montreal has more than 500 branches south of the border and is expanding its reach in the market; most of the focus is on the Midwest states. The division generated a 22% year-over-year jump in adjusted net income in fiscal Q3 2016, and positive results should continue as the U.S. economy improves.
Bank of Montreal is also seeing strong contributions from the transport financing business it recently acquired from GE Capital.
The stock has paid a dividend every year since 1829. Investors who buy today can pick up a yield of 4.1%.
TransCanada had a tough run in 2015, but the stock is back with a vengeance this year.
What’s the story?
When President Obama rejected TransCanada’s Keystone XL pipeline project in 2015, investors sold off the stock thinking the company’s growth prospects had been severely damaged. Resistance to the Energy East project in Canada also hit the shares.
The Keystone setback was certainly a disappointment, and Energy East isn’t coming anytime soon, but TransCanada is moving forward with its growth ambitions via its recent US$13 billion purchase of Columbia Pipeline group. The deal added 5,400 km of natural gas pipelines and raised the size of TransCanada’s medium-term development backlog to $25 billion.
As the new projects are completed and go into service, TransCanada should see cash flow increase enough to support annual dividend growth of 8%, or better, over the next few years.
The mega projects are stuck in the mud, but investors shouldn’t write them off. A Trump win in the U.S. election could put Keystone back on the table, and I think Energy East will eventually be built.
In the meantime, investors get a solid 3.7% yield on the current dividend with strong growth prospects on the horizon.
Is one a better investment?
Both companies are attractive long-term holdings for a TFSA.
If you only have the cash to buy one, I think TransCanada’s dividend-growth outlook is probably better, so I would go with the pipeline operator as the first pick.