Canadian savers are searching for quality dividend-growth stocks to add to their self-directed RRSP portfolios.
Let’s take a look at Fortis Inc. (TSX:FTS)(NYSE:FTS) and BCE Inc. (TSX:BCE)(NYSE:BCE) to see why they might be interesting picks.
Fortis
Fortis owns natural gas distribution, electric transmission, and power generation assets in Canada, the United States, and the Caribbean.
The company has historically grown through strategic acquisitions, and that trend continues.
In 2014, Fortis spent U.S. $4.5 billion to buy Arizona-based UNS Energy. The integration of UNS went smoothly, and Fortis quickly set its sights on a larger prize — Michigan-based ITC Holdings, which it acquired last year for US$11.3 billion.
In Canada, Fortis recently announced a deal to buy a two-thirds interest in the Waneta Dam in British Columbia.
Fortis says these new assets should provide enough revenue and cash flow growth to support dividend increases of at least 6% through 2021.
Fortis has raised its distribution every year for more than four decades, so investors should feel comfortable with the guidance.
The distribution yields 3.4%.
BCE
BCE recently closed its acquisition of Manitoba Telecom Services in a deal that launched BCE into the top spot in the Manitoban market and gave the communications giant a solid base in central Canada to expand its presence in the western provinces.
In addition to extending its mobile and wireline network, BCE has invested in several media assets over the past decade, including sports teams, a television network, specialty channels, and radio stations.
The company also owns an advertising agency and retail stores.
These assets, when combined with the world-class wireless and wireline network infrastructure, create a powerful business that has the potential to interact with most Canadians on a weekly, if not daily, basis.
Critics of the stock say it is expensive. That might be true, but BCE remains a solid pick for investors who want a name that holds up well when the broader market hits a rough patch, and it generates significant free cash flow to support the generous dividend.
The current payout provides a yield of 4.8%.
Is one more attractive?
Both stocks should be reliable buy-and-hold picks to start an RRSP dividend portfolio.
I would probably split the investment between the two companies. Fortis provides nice exposure to the U.S., and BCE’s above-average dividend would bring the net yield above 4%.
