Canadian investors now have an additional $5,500 in TFSA contribution room.
For those of you that were at least 18 years old in 2009, there is as much as $52,000 in tax-free investing space available.
Why use the TFSA?
The TFSA is designed to be an all-purpose savings tool, but the real power of the vehicle lies in holding dividend-growth stocks and reinvesting the distributions in new shares.
This sets off a compounding process that can turn a modest initial investment into a substantial retirement fund over time.
Which stocks should you buy?
The Canadian market has rallied significantly in the past year, and many of the usual go-to names, such as the banks, are now looking fully valued.
They are still great picks, but a few other top dividend gems have pulled back in the wake of the Trump election, and those companies are looking a bit oversold.
Let’s take a peek at BCE Inc. (TSX:BCE)(NYSE:BCE) and Fortis Inc. (TSX:FTS)(NYSE:FTS) to see why they might be interesting choices right now.
BCE
BCE is the dominant player in the cozy Canadian communications sector, and that situation is unlikely to change.
In fact, the company continues to expand its reach across the country through additional investments in its state-of-the-art wireline and wireless networks as well as through acquisitions, such as the purchase of Manitoba Telecom Services (MTS).
The MTS deal will probably go through as BCE has committed to invest heavily in much-needed network upgrades across Manitoba and will sell parts of the MTS mobile business to its peers in order to alleviate some competition concerns.
How dominant is this business?
When you combine BCE’s wireline and wireless networks with all the media assets, you get a company that interacts with most Canadians on a weekly, if not daily, basis.
In fact, any time a Canadian sends a text, calls a friend, downloads a song, streams a movie, checks e-mail, watches the news, or listens to the weather report, the odds are pretty good that BCE is involved somewhere along the line.
That’s a powerful business.
The stock has picked up a bit in the past two weeks, but remains close to its six-month low and currently offers a solid 4.7% dividend yield.
Fortis
Fortis owns natural gas distribution, electricity generation, and power transmission assets in Canada, the United States, and the Caribbean.
The company has grown over the years through a series of strategic acquisitions in all three regions, but recent investments have focused on the United States.
In 2014 Fortis spent US$4.5 billion to acquire Arizona-based UNS Energy. The integration of that deal went so well that management decided to go even bigger and spent US$11.3 billion in 2016 to buy ITC Holdings Corp. — the largest independent transmission company in the United States.
The market initially thought Fortis might be biting off more than it could chew with the ITC deal, but pundits have since warmed up to the move, and investors are looking at some strong dividend growth in the coming years as a result.
Fortis is actually one of Canada’s dividend kings. The company has raised the payout every year for more than four decades, and the trend is set to continue as management expects to raise the payout by at least 6% per year through 2021.
The stock has pulled back a bit over the past two months, providing investors with a chance to pick up the name at a reasonable price and score a 3.9% yield to boot.
Is one more attractive?
Both companies are solid buy and hold picks for any TFSA account. If you only buy one, I would probably give Fortis the edge right now for its strong U.S. exposure.
