Rising interest rates have triggered a sell-off in some of Canada’s top go-to dividend stocks, and investors are wondering which names might be attractive contrarian picks right now.
Let’s take a look at TransCanada Corporation (TSX: TRP)(NYSE: TRP) and BCE Inc. (TSX: BCE)(NYSE: BCE) to see if one deserves to be on your buy list.
TransCanada
TransCanada reported solid Q1 2018 net income of $743 million, or $0.83 per share, compared to $643 million, or $0.74 per share, in the first quarter last year.
Contributions from $7 billion in completed capital projects helped offset revenue losses due to the divestiture of non-core power assets.
TransCanada is working its way through $21 billion in additional near-term capital developments, of which $11 billion should be completed and in service by the end of 2018. The other $10 billion will be in commercial operation by the end of 2021.
As a result, management expects revenue and cash flow to improve enough to support annual dividend increases of at least 8% per year over that time frame.
Beyond 2021, the company is evaluating another $20 billion in developments, including Keystone XL, Coastal GasLink, and the Bruce Power life extension. A go-ahead on any one of these large projects could result in an upward revision of the dividend-growth guidance.
TransCanada’s stock price is down amid the broader pullback in the energy infrastructure sector, but the drop might be overdone, given the strong growth outlook.
At the time of writing, investors can pick up the stock for $54.40 and get an annualized yield of 5%.
BCE
BCE was a $63 stock in December. Today, investors can snag it for $54.60 and get a 5.5% yield.
The company might not have the same growth opportunities that are available to TransCanada, but BCE continues to expand its dominant position in the Canadian communications market.
The company bought Manitoba Telecom Services early last year and closed its acquisition of home security provider AlarmForce in January 2018. BCE also launched its new low-cost prepaid mobile service Lucky Mobile in late 2017.
In addition to the internet, TV, and phone services, the company delivers across its state-of-the-art mobile and wireline network infrastructure, BCE also owns a large media business, including a TV network, specialty channels, sports teams, and radio stations. Combined, telecom and media assets form a powerful business that has that capability to interact with most Canadians on a weekly, if not daily, basis.
The dividend should be rock solid, and while investors shouldn’t expect a surge in the stock price, the downside should be limited at this point.
Is one more attractive?
If you have some cash sitting on the sidelines, I would make TransCanada the first pick today. The company likely offers better dividend growth over the medium term, and good news on the long-term projects could spark a rally in the stock.
