MENU

Is Royal Bank of Canada or Fortis Inc. a Better TFSA Dividend Pick?

Canadian investors are searching for top names to add to their Tax-Free Savings Accounts (TFSAs).

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 more attractive today.

Royal Bank

Royal Bank is one seriously profitable company.

How profitable?

The bank earned more than $10 billion in fiscal 2016. That’s an impressive performance, especially given some of the headwinds facing the sector.

Royal Bank’s secret lies in the balanced nature of its revenue stream. The company relies heavily on its Canadian personal and commercial banking operations, but it also has strong wealth management, insurance, and capital markets businesses.

Going forward, management sees strong growth opportunities south of the border, which is why the bank spent US$5 billion in late 2015 to acquire a California-based private and commercial bank, City National.

Pundits initially thought the deal was a bit expensive, but the rally in bank stocks through 2016 suggests the move was timed just right.

City National is already making strong contributions to the wealth management revenue stream, and investors could see Royal Bank use the group as a platform to expand its reach in the U.S. market.

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

Fortis

Fortis is a natural gas distribution, electricity generation, and power transmission company with assets located in Canada, the United States, and the Caribbean.

The business has grown over the years through a series of acquisitions, and that trend continues with the most recent deal being the US$11.3 billion purchase of ITC Holdings Corp., the largest independent transmission company in the United States.

Fortis gets about 94% of its revenue from regulated assets, meaning cash flow should be both predictable and reliable.

Management plans to raise the dividend by at least 6% per year through 2021. Investors should feel comfortable with the outlook, considering the company has raised its dividend every year for more than four decades.

The current distribution provides a yield of 3.9%.

Is one more attractive?

Both stocks are top-quality buy-and-hold picks for a TFSA portfolio.

That said, Royal Bank has enjoyed a stellar run in recent months and is likely fully valued right now. Fortis, meanwhile, has come under a bit of pressure as a result of interest rate concerns, but I think the pullback is slightly overdone.

At this point, I would probably make Fortis the first choice.

Looking for a few more great dividend-paying stocks to buy today?

If so, you’re in luck! Because we just tapped one of our top analysts -- and experts in this field -- and asked him to put together a special report highlighting three of his favorite dividend-payers to buy right now.

These three “Cash Kings” have an average yield of 4.0%... are poised to profit from three diverse (and highly crucial) sectors of the economy… and look like they have the ability to grow their dividend well into the future.

For a limited time you can get a copy of this brand new special report free of charge by simply clicking here.

Fool contributor Andrew Walker has no position in any stocks mentioned.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.