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Dividend Investors: Should Royal Bank of Canada (TSX:RY) or TransCanada Corp. (TSX:TRP) Stock Be in Your TFSA in 2019?

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The correction in the TSX Index through 2018 is giving dividend investors an opportunity to load up their TFSA with cheap income stocks offering attractive yield and growing payouts.

Let’s take a look at two companies that might be interesting picks to start 2019.

Royal Bank of Canada (TSX:RY)(NYSE:RY)

Royal Bank generates roughly $1 billion in profits every month. The company is a major force in both Canada and on the global financial stage. In fact, Royal Bank has been deemed as being too big to fail.

The bank gets its revenue from a balanced mix of personal and commercial banking, wealth management, capital markets, investor and treasury services, and insurance operations. The US$5 billion acquisition of California-based City National three years ago gave Royal Bank a strong U.S. presence in the private and commercial banking segment and investors could see the group expand in the coming years.

Royal Bank is targeting annual earnings growth of 7-10% and that should support ongoing dividend increases in that range.

The stock trades at $93 per share, compared to $103 at the beginning of last year. The current dividend provides a yield of 4.2%.

TransCanada (TSX:TRP)(NYSE:TRP)

TransCanada is a major player in the energy infrastructure industry with oil, natural gas, and natural gas liquids pipeline and storage assets located in Canada, the United States, and Mexico. TransCanada also has power generation capacity of 6,100 megawatts.

The energy infrastructure sector is facing growth challenges, specifically with respect to new major pipeline projects. TransCanada’s Keystone XL development is years behind its original schedule and is still facing opposition in the United States. In the end, the project should be completed, but investors can be forgiven for have a skeptical position when it comes to investing in the major pipeline players.

That said, TransCanada has managed to line up a significant development backlog. The company has $36 billion in total secured capital projects through 2023, and more could be on the way. As a result, management anticipates revenue and cash flow growth will support dividend increases of at least 8% per year through 2021.

The stock is down from $61 per share a year ago to $49. This puts the existing dividend yield at an attractive 5.7%.

Is one more attractive?

TransCanada and Royal Bank are both trading at levels that appear oversold and should be solid buy-and-hold picks for a dividend focused TFSA today. Given the steep pullback in the share prices, I would probably split a new investment between the two companies to get an average yield of close to 5% with solid exposure to both Canada and the United States.

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