Canadian investors are searching for top dividend stocks to add to their TFSA portfolios.
The strategy is popular with buy-and-hold investors who use the distributions to acquire new shares. This taps a powerful compounding process that can turn a modest initial investment into a nice nest egg over time.
Let’s take a look at Telus Corporation (TSX:T)(NYSE:TU) and TransCanada Corporation (TSX:TRP)(NYSE:TRP) to see if one should be in your portfolio.
Telus
Telus just reported strong Q4 2017 results.
Consolidated operating revenue jumped 4.9% compared to Q4 2016, supported by a 23% increase in new customers across the wireless, internet, and TV business lines.
Telus works hard to ensure its customers are happy, and the efforts are turning up in the numbers. Telus reported an industry-leading wireless postpaid churn rate of less than 1%, and the company had its lowest residential network access line losses in 13 years.
Telus is targeting 2018 free cash flow of up to $1.4 billion and plans to continue sharing the money with investors. Management says dividend growth should be at least 7% this year.
The company has a long track record of raising the payout, so investors should feel comfortable with the guidance. At the time of writing, the stock trades for $45 per share and provides a yield of 4.5%.
TransCanada
TransCanada owns energy infrastructure and gas assets in Canada, the United Sates, and Mexico.
The company is working its way through $24 billion in commercially secured near-term projects, and has an additional $20 billion in development, including Keystone XL, the Bruce Power life extension, and the Coastal GasLink project.
As the new assets are completed and go into service, cash flow is expected to increase enough to support annual dividend growth of at least 8% through 2021.
The current quarterly payout of $0.625 per share provides an annualized yield of 4.7%.
TransCanada gets the majority of its revenue from regulated businesses or long-term contracted assets, so cash flow should be reliable. The company has raised its dividend in each of the past 17 years.
Is one a better bet?
Telus tends to hold up better during volatile times in equity markets, while TransCanada currently looks oversold after the recent dip.
Both stocks have strong dividend-growth outlooks and provide attractive yields. At this point, I would probably split a new investment between the two names.
If you are more focused on growth than dividends, other opportunities exist in the Canadian market today.
