Pensioners are searching for top dividend stocks to help boost their retirement income.
TransCanada had a tough run in 2015 as falling oil prices and President Obama’s rejection of the Keystone XL pipeline scared investors out of the stock.
Contrarian types who realized the sell-off was overdone and stepped in at the bottom are now sitting on gains of close to 50%.
Oil prices recovered last year and TransCanada made an important acquisition with its takeover of Columbia Pipeline Group. The deal gave TransCanada important access to the Marcellus and Utica shale plays as well as strategic natural gas pipeline infrastructure running to the Gulf Coast.
The addition of Columbia also boosted the development portfolio to the point where TransCanada now has $23 billion in commercially secured near-term projects on the go that should be completed and in service by 2020.
As the new assets go into service, TransCanada expects cash flow to increase enough to warrant annual dividend hikes of at least 8%.
The company’s mega-projects remain a question mark, but good news might be on the horizon.
Keystone XL is back on the negotiating table after the Trump election win, and there is a reasonable chance the pipeline will get built.
As for Energy East, the massive project designed to bring Alberta’s oil to the Canadian east coast, TransCanada is pretty much back to square one, but investors shouldn’t consider the project dead just yet. Ottawa appears willing to help get Canadian oil to the coast, so Energy East might still get the green light.
TransCanada just raised its quarterly dividend by more than 10% to $0.625 per share. The distribution now offers a yield of 4%.
Fortis owns natural gas distribution, power generation, and electricity transmission assets in Canada, the United States, and the Caribbean.
The company spent US$11.3 billion last year to acquire ITC Holdings Corp., the largest independent transmission company in the United States.
Investors initially sold Fortis on the news, but the stock bounced back once the market became more comfortable with the deal.
Fortis has raised its dividend every year for more than four decades, and the strong trend looks set to continue. Management plans to boost the payout by at least 6% per year through 2021.
The current payout offers a yield of 3.8%.
Which stock is best?
Both companies are proven buy-and-hold picks for income investors and should be solid additions to any TFSA.
That said, TransCanada probably offers better dividend-growth potential over the medium term, and any good news on the mega-projects could send the shares sharply higher.
As such, I would make the pipeline giant the first choice today.
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Fool contributor Andrew Walker has no position in any stocks mentioned.