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TFSA Investors: 2 Top Stocks With 4% Yields and Strong Upside Potential

TFSA investors are searching for ways to get better yield out of their savings, while investing in dividend stocks that have strong potential to rise over the medium term.

Let’s take a look at Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) and Bank of Montreal (TSX:BMO) (NYSE:BMO) to see if one deserves to be on your buy list right now.

Canadian Natural Resources

CNRL has a diversified mix of natural gas, light crude oil, heavy crude oil, oil sands, and offshore oil production facilities.

The operations and resources are primarily located in Canada, but also include assets in the UK North Sea and offshore Africa.

CNRL is the largest independent natural gas producer in Canada. Natural gas prices in Alberta have increased significantly in recent weeks due to an early onset of cold weather and low storage levels as a result of reduced drilling due to weak market conditions in the past few years.

The natural gas sector is normally quite volatile, but the outlook for Canadian producers should be positive in over the course of the next 12 months.

CNRL has the flexibility to move capital to near-term opportunities, and the improvement in gas prices could turn up as a nice boost to revenue in Q4 2019 and through the first part of next year.

At the same time, oil prices could get a lift on any news of a significant trade deal between China and the United States. Unrest in the Middle East could also put upward pressure on oil prices.

CNRL pays a quarterly dividend of $0.375 per share with a strong track record of raising the payout. The board hiked the distribution by 12% in 2019. The current dividend provides a yield of 4.1%.

The stock is up 20% since late August, and more gains could be on the way if the natural gas rally continues and oil catches a new tailwind. The 2018 high was above $48.

Bank of Montreal

Bank of Montreal trades at $100 per share at writing, up from the $86 low it hit last December, but well off the 2019 high around $106.

The current price-to-earnings multiple is 11.4, making Bank of Montreal relatively cheap compared to TD and Royal Bank.

Bank of Montreal has a balanced revenue stream coming from personal and commercial banking, wealth management, and capital markets activities. The company’s U.S. operations include roughly 500 branches mostly located in the Midwest states.

A strong U.S. dollar against the loonie helps drive better earnings when the American profits are converted to Canadian dollars. The U.S. business also provides a nice hedge against any trouble in the Canadian economy.

Bank of Montreal has paid a dividend to investors every year since 1829. That’s important for dividend investors who rely on sustainable and growing payouts for income or portfolio expansion.

Fears of a crash in the Canadian housing market are falling to the wayside as mortgage rates remain low and interest rate hikes in Canada appear to be finished for the medium term.

The stock appears cheap today and investors can pick up a yield of 4.1% at writing.

The bottom line

CNRL and Bank of Montreal pay attractive dividends that should continue to grow. The two stocks have bounced off their 12-month lows, but still look attractive today.

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Fool contributor Andrew Walker has no position in any stock mentioned.

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