Should Telus Corporation or TransCanada Corporation Be a TFSA Pick Today?

Telus Corporation (TSX:T)(NYSE:TU) and TransCanada Corporation (TSX:TRP)(NYSE:TRP) continue to forecast strong dividend growth. Is one a better bet?

| More on:
The Motley Fool

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.

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 has no position in any stock mentioned.

More on Dividend Stocks

A worker drinks out of a mug in an office.
Dividend Stocks

A Dividend Giant I’d Buy Over BCE Stock Right Now

The largest telecom company in Canada is brutally discounted, and the dividend yield is naturally up, but it's too risky…

Read more »

a man celebrates his good fortune with a disco ball and confetti
Dividend Stocks

Get Ready to Invest $7,000 in This Dividend Stock for New Year Passive Income

This is the year you get ahead, and maxing out your TFSA contribution is the best way to start.

Read more »

ways to boost income
Dividend Stocks

Buy 2,653 Shares of This Top Dividend Stock for $10K in Annual Passive Income

Enbridge is a blue-chip TSX dividend stock that offers shareholders a forward yield of 6%. Is it still a good…

Read more »

Blocks conceptualizing the Registered Retirement Savings Plan
Dividend Stocks

CPP at 70: Is it Enough if Invested in an RRSP?

Even if you wait to take out CPP at 70, it's simply not going to cut it during retirement. Which…

Read more »

a person looks out a window into a cityscape
Dividend Stocks

1 Marvellous Canadian Dividend Stock Down 11% to Buy and Hold Immediately

Buying up this dividend stock while it's down isn't just a smart move, it could make you even more passive…

Read more »

happy woman throws cash
Dividend Stocks

Step Aside, Side Jobs! Earn Cash Every Month by Investing in These Stocks

Here are two of the best Canadian monthly dividend stocks you can consider buying in December 2024 and holding for…

Read more »

chip with the letters "AI" on it
Dividend Stocks

The Top Canadian AI Stocks to Buy for 2025

AI stocks are certainly strong companies, and there are steady gainers in Canada as well. But these three are the…

Read more »

calculate and analyze stock
Dividend Stocks

2 High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These stocks pay attractive dividends for investors seeking passive income.

Read more »