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TFSA Investors: Should You Buy Royal Bank of Canada or Fortis Inc.?

Canadian investors are searching for top stocks to put in their TFSA portfolios.

Let’s take a look at Royal Bank of Canada (TSX:RY)(NYSE:RY) and Fortis Inc. (TSX:FTS)(NYSE:FTS) to see if one is a better bet right now.

Royal Bank

Royal Bank earned fiscal 2016 net income of $10.5 billion. That’s pretty impressive given some of the economic headwinds facing the Canadian banks.

Royal Bank’s secret to success can be found in its balanced revenue stream. Like its peers, the company relies heavily on Canadian personal and commercial banking operations, but Royal Bank also has strong wealth management, capital markets, and insurance divisions.

Going forward, investors should also see growing contributions from the United States.

Royal Bank completed its US$5 billion purchase of City National late last year. The private and commercial bank provides a nice platform for Royal Bank to expand its presence in the segment, and investors could see more deals in the coming years.

Royal Bank has a solid track record of dividend growth. The current distribution offers a yield of 3.6%.


Fortis owns electricity generation, power transmission, and natural gas distribution assets in Canada, the United States, and the Caribbean.

Most of the investment in recent years has been in the United States, and the country now accounts for 60% of the company’s assets.

Fortis gets about 94% of its revenue from regulated businesses. This means cash flow should be predictable and reliable, which is good news for dividend investors. The company has raised its distribution every year for more than four decades and expects to boost the payout by at least 6% per year through 2021.

Canadian investors can own Fortis in their TFSA and collect tax-free dividends, despite the majority of the assets being located in the United States. That’s important because holding a U.S.-based stock inside the TFSA would trigger a tax hit.

The current distribution provides a yield of 3.9%.

Is one a better bet?

Both stocks are attractive buy-and-hold picks for a TFSA.

Royal Bank has enjoyed a big run in the wake of the U.S. election, and Fortis has pulled back amid expectations of rising interest rates. At this point, the rally in Royal Bank might be a bit stretched, and the sell-off in Fortis looks a bit overdone, so I would probably make the utility my first choice 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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