The Motley Fool

American Jobs Surge: 2 Canadian Stocks to Ride the U.S. Recovery Higher

Image source: Getty Images

The U.S. economy added 4.8 million jobs in June, easily blowing past the roughly three million increase estimated by economists. Unemployment in the United States fell to 11.1%.

Strong hiring by businesses suggests aid measures put in place by the government and the Federal Reserve are working. The jump in jobs bodes well for a speedy economic rebound. Good news south of the border is also positive for Canada. The U.S. remains the country’s largest trading partner.

Let’s take a look at two Canadian stocks with significant U.S. operations that might be attractive picks right now for a dividend-focused TFSA portfolio.

TD

TD is best known for its large Canadian retail banking business, but the company actually operates more branches in the United States than it does in Canada. The bank spent billions of dollars on acquisitions over the past 15 years to build the American business. Operations run from Maine right down the east coast to Florida.

Falling unemployment reduces the likelihood people will default on mortgages, car loans, and credit card balances. TD set aside $3.2 billion as provisions for credit losses (PCL) for fiscal Q2 2020. The American business accounted for US$800 million, or roughly $1.1 billion of the total.

A better-than-expected jobs rebound could result in the actual loan losses being lower than the PCL charges. The U.S. retail banking business typically accounts for about a third of TD’s net income.

TD maintains a strong capital position with a CET1 ratio of 11%. This means it has adequate liquidity to ride out the downturn, but the stock still comes with risks.

Rising case numbers in the United States could slow the reopening of the economy. This could delay additional job gains or even result in job cuts again in some areas where new lockdowns are put in place.

Overall, TD should be a solid pick. The stock appears cheap at the current price near $60 per share, and the dividend should be safe. Investors who buy now can pick up a yield of 5.2%.

CN

Canadian National Railway (TSX:CNR)(NYSE:CNI) is the only rail operator in North America with lines connecting ports on three coasts. The network crosses Canada from the Pacific to the Atlantic and runs right down the middle of the United States to the Gulf of Mexico.

CN is a vital part of the U.S. and Canadian economies, carrying roughly $250 billion worth of cargo each year. The business units are diverse, ranging from coal and crude oil to cars, fertilizer, forestry products, and finished goods.

CN generates enough free cash flow to cover its capital program and the dividend. The railway spent nearly $4 billion in 2019 on new locomotives, new rail cars, network upgrades, and new technology to make sure the business runs efficiently.

CN’s dividend-growth rate is among the best in the TSX Index over the past two decades. The stock already recovered most of its losses during the March crash and should steadily chug higher in the coming years.

The bottom line

TD and CN are top-quality picks for a TFSA dividend fund and offer investors great exposure to the U.S. recovery.

If you think the economic recovery is picking up steam, these stocks deserve to be on your radar.

This Tiny TSX Stock Could Be the Next Shopify

One little-known Canadian IPO has doubled in value in a matter of months, and renowned Canadian stock picker Iain Butler sees a potential millionaire-maker in waiting...
Because he thinks this fast-growing company looks a lot like Shopify, a stock Iain officially recommended 3 years ago - before it skyrocketed by 1,211%!
Iain and his team just published a detailed report on this tiny TSX stock. Find out how you can access the NEXT Shopify today!

Click here to discover how!

David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Canadian National Railway. The Motley Fool recommends Canadian National Railway. Fool contributor Andrew Walker owns shares of TD.

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.