Should You Put BCE Inc. or Royal Bank of Canada in Your RRSP Should You Put BCE Inc. or Royal Bank of Canada in Your RRSP?
By Andrew Walker - May 9, 2016 | More on: BCE RY BCE RY
Dividend stocks can help Canadians reach their retirement savings goals, but picking the right companies is paramount to success.
Let’s take a look at BCE Inc. (TSX:BCE)(NYSE:BCE) and Royal Bank of Canada (TSX:RY)(NYSE:RY) to see if one is a better pick for your RRSP.
BCE
BCE has been on a buying binge in recent years, and the trend continues.
The company just announced plans to acquire Manitoba Telecom Services for $3.9 billion. In order to get approval, BCE is selling some of the mobile assets to Telus, but the end result should see BCE emerge as the strongest player in the Manitoba market.
The acquisition is the latest in a string of telecom and media purchases made by BCE to ensure it earns revenue all along the communications value chain. At this point, the company is so well entrenched in the Canadian market I simply don’t see how it could be toppled off its throne.
In fact, any time a Canadian sends a text, checks e-mail, streams a movie, listens to the weather report, or watches the news, there is a pretty good chance that BCE is involved in the process.
The company generates significant free cash flow and is good about sharing it with investors. Currently, the stock pays a quarterly dividend of $0.6825 per share that yields 4.6%.
If you want a name you can simply buy and forget about for decades, BCE is a solid pick.
Royal Bank
Royal Bank is an earnings machine. The business generated 2015 profits of just under $10 billion, and the strong results continue despite some economic headwinds.
A balanced revenue stream is a part of the secret to this bank’s success. Royal Bank relies heavily on the Canadian retail operations, but it also has strong wealth management, insurance, and capital markets groups that make solid contributions.
Going forward, the company should also generate significant revenue south of the border as a result of the recent US$5 billion acquisition of California-based City National. The price tag for the private and commercial bank is hefty, but the purchase sets Royal Bank up to expand its reach in the attractive U.S. market.
Some investors are concerned about oil and housing threats. Royal Bank is increasing its loss provisions on energy loans, but direct oil and gas exposure represents less than 2% of its total loans. On the housing front, the mortgage portfolio is more than capable of riding out a downturn in the Canadian housing market.
Royal Bank has a long history of dividend growth. The stock currently pays a quarterly distribution of $0.81 per share for a yield of 4.3%.
Which stock should you buy?
Both companies are solid long-term bets for any RRSP account. If you only have the money to buy one, I would go with BCE because it offers a slightly higher yield and tends to be more stable when things go bump in the night in the equity market.