Canadian investors are searching for top stocks to put in their RRSP accounts.
BCE is a dominant force in the Canadian communications industry, and that isn’t likely to change.
In fact, the company is strengthening its position through the takeover over Manitoba Telecom Services and the recent deal to acquire a full interest in Q9 Networks.
BCE has also been on a media-buying binge in recent years, adding sports teams, a television network, specialty channels, and radio stations to the portfolio.
Old-school shareholders were a bit concerned when BCE moved into the media space, but the timing appears to be right as consumers demand 24/7 access to their favourite content across multiple platforms, and advertisers want to make sure they are reaching as many people as possible.
Critics of the stock say BCE is expensive based on historical trends and is at risk of a pullback when interest rates rise. The concerns are valid, but rates are not expected to move significantly in the medium term, and BCE’s lofty dividend remains one of the safest in the Canadian market. That should limit any downward pressure when interest rates begin to rise.
The stock currently yields 4.7%.
Royal Bank has decided to boost growth through acquisitions with last year’s US$5 billion purchase of California-based City National, a commercial and private bank that caters to high-net-worth clients.
The deal provides a solid platform for Royal Bank to expand its reach in the sector, and investors could see further deals in the coming years.
Royal Bank earned just under $10 billion in profit last year, which is impressive given ongoing economic headwinds, and investors should see the company blow through the milestone when it reports fiscal 2016 earnings in the coming weeks.
Some investors are worried the oil rout and a housing meltdown are going to hammer the Canadian banks. Royal Bank’s direct energy exposure represents about 2% of the total loan book, so there isn’t too much to worry about on that front.
Regarding housing, the company has a huge mortgage portfolio, but half of the mortgages are insured, and the loan-to-value ratio on the remaining loans is just 52%. This means house prices would have to fall off a cliff before the bank incurs any material damage.
Royal Bank has a strong track record of dividend growth, and investors should see the trend continue. The current distribution yields 3.7%.
Is one more attractive?
Both BCE and Royal Bank are solid long-term picks and deserve to be in any RRSP portfolio.
BCE has pulled back in recent weeks, making the valuation a bit more palatable. If you want the best dividend yield and a more conservative play, go with the communications giant.
If you are willing to ride out some volatility when the stock market hits a speed bump, Royal Bank probably offers a better opportunity for longer-term capital appreciation.
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Fool contributor Andrew Walker has no position in any stocks mentioned.