The Canadian economy is facing some headwinds, and that has investors searching for stocks that offer U.S. exposure.
A little more than a decade ago TD had a limited U.S. presence, but an aggressive acquisition spree has built a substantial American business that continues to grow.
TD’s U.S. retail operations run from Maine right down the east coast of the U.S. to Florida with more than 25,000 employees serving 8.5 million customers.
The company actually has more branches south of the border than it does in Canada, and TD is now one of the 10 largest banks in the United States.
TD also owns more than 40% of TD Ameritrade, a U.S. brokerage business.
The U.S. operations provide a great hedge against trouble in the Canadian economy, and earnings from the group continue to rise.
TD reported fiscal Q3 2016 net income of $2.4 billion, of which $788 million came from the U.S. retail and brokerage operations. The U.S. group’s profits rose 21% compared with the same period in 2015, and the contribution is about to get bigger.
TD Ameritrade and Toronto-Dominion Bank just announced a deal to acquire Scottrade Financial Services for US$4 billion.
TD Ameritrade will pay US$2.7 billion for the brokerage operations, and Toronto-Dominion Bank will spend $1.3 billion to buy Scottrade’s online bank.
The deal is expected to close by the end of September next year.
What about dividends?
TD’s compound annual dividend growth rate has been 12% over the past two decades. Investors should see the distribution continue to rise at a regular clip in line with earnings growth. The current payout provides a yield of 3.6%.
Fortis is a utility company with businesses located in five Canadian provinces, nine U.S. states, and three Caribbean countries.
Much of the growth in recent years has focused on the United States. The company spent US$4.5 billion in 2014 to acquire Arizona-based UNS Energy and just closed its US$11.3 billion purchase of Michigan-based ITC Holdings Corp., which is the largest independent transmission company in the United States.
With ITC now in the portfolio, Fortis has 60% of its assets located in the United States.
The successful integration of strategic acquisitions over the years has enabled Fortis to raise the dividend on a regular basis. In fact, the company has increased the distribution every year for more than four decades, and the trend is set to continue.
Management plans to hike the payout by at least 6% per year through 2021. The current payout provides a yield of 3.7%.
Fortis gets 94% of its revenue from regulated businesses, so cash flow should be predictable and reliable.
Is one more attractive?
Fortis has more exposure to the U.S. and is probably the more conservative pick today.
Some investors are worried about a Canadian housing meltdown. If you are in that camp, it might be best to make Fortis the first choice.