The Motley Fool

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

Image source: Getty Images

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.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.