Equity markets could be setting up for a much-needed pullback, and investors with some cash on the sidelines in their RRSPs are wondering which stocks might be attractive picks.
Enbridge completed its $37 billion takeover of Spectra Energy last year in a deal that created North America’s largest energy infrastructure company.
Spectra added important gas assets and provided a nice boost to the capital plan. In fact, Enbridge plans to complete about $22 billion in near-term projects over the next three years.
As the new assets go into service, management expects cash flow to increase enough to support annual dividend hikes of at least 10% through 2020.
Enbridge is shifting its strategy to focus on regulated businesses and plans to sell $10 billion in non-core assets, of which $3 billion could be sold in 2018. The company will use the proceeds to reduce debt and strengthen the balance sheet.
Enbridge has a strong track record of dividend growth, so investors should feel comfortable with the guidance. At the time of writing, the stock provides a yield of 5.8%.
Bank of Nova Scotia
Investors often overlook Bank of Nova Scotia in favour of its larger peers, but the company probably deserves more respect.
Bank of Nova Scotia has invested heavily in Latin America in recent years, with a particular focus on Mexico, Peru, Chile, and Colombia. The four countries are the core of the Pacific Alliance, a trade bloc set up to promote the free movement of goods and capital among the member states.
As the middle class grows in the combined market of more than 200 million consumers, Bank of Nova Scotia stands to benefit from increased demand for loans and investment products.
The international operations already account for about 30% of the bank’s net income.
Some investors are concerned that rising interest rates could trigger a downturn in the Canadian housing market. A total meltdown would certainly hit the banks, but most analysts predict a gradual pullback, and Bank of Nova Scotia’s mortgage portfolio is capable of riding out a rough patch.
Overall, rising interest rates tend to be a net positive for the banks.
Bank of Nova Scotia’s dividend provides a yield of 3.9%.
Is one more attractive?
Both stocks should be solid buy-and-hold picks for a dividend-focused RRSP. I would probably split a new investment between the two companies today.
These are household names, but stocks with a lower investor profile are also worth considering when the market pulls back.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Andrew Walker owns shares of Enbridge. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.