If you’re saving up to buy a home, then you’ve probably heard about the First-Home Savings Account (FHSA). A tax-sheltered account, it can go a long way toward helping you establish a large downpayment. The FHSA allows you to contribute up to $8,000 a year. That combined with the $35,000 home buyers’ plan could leave you with a $51,000 downpayment that is free to be invested tax free.
The question of course is, “How do I invest the money?” One option is to invest it in GICs, which today have higher yields than they’ve had in years. It’s possible to get up to 5.5% in GICs now! But, of course, you may feel a desire to invest a small percentage of your home savings into the stock market. If you do, read on, because in this article, I’ll explore two stocks that could add some yield to your FHSA.
Royal Bank of Canada
Royal Bank of Canada (TSX:RY) is a Canadian bank whose characteristics make it a suitable candidate for inclusion in a diversified stock portfolio. First, it is pretty cheap, trading at just 10.9 times earnings and 3.24 times sales. Second, it is highly profitable. Third, it put out a strong earnings release just this morning, one that showed strong growth in revenue as well as earnings per share (EPS).
A company putting out one good earnings release doesn’t itself mean that the stock is a buy, but these strong earnings releases are something of a pattern with Royal Bank of Canada. The company’s revenue went up in all of the previous four quarters, and earnings went up more often than not.
Finally, Royal Bank of Canada stock has a high dividend yield. The stock yields 4.5% — well above average — and that yield could increase over time. Again, RY’s earnings increased last quarter, so there’s a decent chance of that happening.
Fortis
Fortis (TSX:FTS) is a Canadian utility company whose shares have a 4.21% dividend yield. The company has an excellent dividend track record, having increased its dividend 49 years in a row. If it achieves another dividend hike this year, it will acquire the status of a Dividend King — a company with +50 years of dividend increases.
How has Fortis managed to achieve all of this dividend growth? Partially, it’s because of the advantages enjoyed by utilities in general. As a sector, utilities typically enjoy stable revenue, because they are government regulated (read as protected) and their service is so indispensable. People would rather sell their cars than go cold in the winter. This fact gives utilities a high degree of revenue stability, which can translate to high earnings growth if they manage their expenses well.
Second, Fortis has managed many aspects of its business well. It has invested heavily in expansion, buying up utilities assets across Canada, the United States and the Caribbean, yet it hasn’t done so at too great a cost. The result has been a decent track record of business growth, which has driven attendant growth in the dividend.
