Canadians are looking at the uncertain market conditions and wondering which dividend stocks are the best picks to put in their TFSA portfolios.
Fortis has a long track record of using organic projects and acquisitions to drive growth.
In recent years, the big investments have been in the United States with the US$4.5 billion purchase of Arizona-based UNS Energy in 2014 and last year’s US$11.3 billion purchase of Michigan-based ITC Holdings.
Management says these purchases, combined with organic growth completions, such as the Tilbury LNG facility expansion in British Columbia, should help drive cash flow growth that can support annual dividend increases of at least 6% through 2021.
Fortis has raised its dividend every year for more than four decades, so investors should feel comfortable with the guidance.
The stock currently pays a quarterly dividend of $0.40 per share. That’s good for a yield of 3.8%.
TransCanada also went on the acquisition trail in 2016, scooping up Columbia Pipeline Group in a deal that added significant natural gas assets.
The purchase also helped boost TransCanada’s near-term development portfolio, which now stands at $23 billion.
As the new assets are completed and go into service, TransCanada expects to raise the dividend by at least 8% per year through 2020.
In addition, TransCanada has $45 billion in longer-term projects in the development pipeline, including Keystone XL and Energy East.
Keystone was rejected by President Obama, but it’s now back in play under President Trump.
Energy East remains stuck in the mud, and is pretty much back to square one in the approval process, but it appears that Ottawa remains committed to help Alberta’s oil producers move their product to the coast, so the pipeline might still see the light of day in the coming years.
TransCanada’s dividend provides a yield of 4%.
Is one more attractive?
Both stocks should be solid long-term holdings for TFSA dividend-growth portfolios. Which one you buy depends on your risk tolerance in the current environment.
Fortis is probably the better pick for more conservative investors, especially if you think the energy sector is due for another hit or the broader market will see a large pullback this year.
TransCanada, however, likely offers better distribution growth over the medium term, and an approval for one of the mega-projects could give the stock a nice lift. If you think the oil rout is truly over, TransCanada might be the better choice.
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Fool contributor Andrew Walker has no position in any stocks mentioned.