Canadians are searching for quality dividend-growth stocks to put inside their self-directed RRSP accounts.
The strategy makes sense, especially when the positions are held for a long time and the dividends are invested in new shares. This takes advantage of the power of compounding and can turn a modest initial investment into a decent sum to be used in the golden years.
Let’s take a look at Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) and Fortis Inc. (TSX:FTS)(NYSE:FTS) to see why they might be interesting picks.
Bank of Nova Scotia
Bank of Nova Scotia is Canada’s most international bank. The company has invested heavily in building up a strong presence in Latin America, with a particular focus on Mexico, Peru, Colombia, and Chile.
These four countries make up the core of the Pacific Alliance, which is a trade bloc set up to promote the free movement of capital and goods in the member states.
The international operations generated 29% of Bank of Nova Scotia’s net income in the latest quarter. This provides a nice hedge for investors who are concerned about a potential downturn in the Canadian economy.
Bank of Nova Scotia just raised its quarterly dividend by three cents to $0.79 per share. That’s good for a yield of 4.1% at the time of writing.
Fears about a housing meltdown might be a bit overblown, and Bank of Nova Scotia’s residential mortgage portfolio is more than capable of riding out a pullback in house prices.
The company is a solid long-term performer and should continue to be an attractive holding.
Fortis
Fortis owns natural gas distribution, electric transmission, and power generation assets in Canada, the United States, and the Caribbean.
The company made two large acquisitions in the U.S. in recent years, including the purchase of Arizona-based UNS Energy for US$4.5 billion and the US$11.3 billion takeover of Michigan-based ITC Holdings.
The market initially thought the ITC deal might be too big, but the integration has gone well, and the assets are performing as expected.
Fortis plans to raise its dividend by at least 6% per year through 2021, as a result of the increase in cash flow from the new additions to the portfolio.
The company has increased the payout every year for more than four decades, so investors should feel comfortable with the guidance.
Fortis currently offers an annualized yield of 3.5%.
Is one more attractive?
At this point, I would probably split a new investment between the two names to get solid exposure to Canada, the United States, and Latin America.
