Canadian savers are searching for top-quality dividend-growth stocks to add to their self-directed RRSP portfolios.
The strategy makes sense, especially when the distributions are invested in new shares to harness the power of compounding.
Let’s take a look at Bank of Montreal (TSX:BMO)(NYSE:BMO) and Enbridge Inc. (TSX:ENB)(NYSE:ENB) to see why they might be interesting picks.
Bank of Montreal
Investors often overlook Bank of Montreal in favour of its larger peers, but the stock probably deserves more respect.
Bank of Montreal has a balanced revenue stream, with earnings coming from commercial and retail banking, wealth management, and capital markets operations.
The company also has a nice split between Canada and the United States, with more than 500 branches operating south of the border, primarily in the U.S. Midwest.
Bank of Montreal’s stock is down about 9% over the past six months due to weaker-than-expected numbers from the American operations, but the market reaction might be too harsh.
Why?
In the fiscal Q3 2017 report, Bank of Montreal’s U.S. group generated results that were pretty much in line with the same period last year. Overall, the bank delivered year-over-year Q3 net income growth of 11%.
Bank of Montreal has paid a dividend every year since 1829. That’s an impressive track record, and investors should feel confident the trend will continue. At the time of writing, the stock provides a yield of 3.9%.
Rising rates could put pressure on some Canadian homeowners, but Bank of Montreal’s mortgage portfolio is capable of riding out a downturn, and banks generally benefit when interest rates move higher.
Enbridge
Enbridge closed its purchase of Spectra Energy earlier this year in a deal that created North America’s largest energy infrastructure business.
Spectra added import gas assets to complement Enbridge’s liquids pipelines operations, and provided a nice boost to the capital plan.
In the latest earnings report, Enbridge said it has $31 billion in near-term commercially secured projects underway that should support dividend growth of at least 10% per year through 2024.
That’s an attractive outlook for dividend investors, especially when you look at the current yield of 4.9%.
The stock is down more than 10% in 2017 due to weakness in the broader energy sector.
Is one more attractive?
Both stocks look oversold today and should be solid buy-and-hold picks for an RRSP dividend portfolio.
If you only buy one, I would probably make the pipeline giant the first choice right now. Enbridge provides a higher yield and likely offers better dividend growth over the medium term.
