Royal Bank (TSX:RY) and Enbridge (TSX:ENB) are industry leaders and TSX giants. Investors seeking reliable picks for their Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) are wondering if these top dividend stocks are good to buy right now in an era of economic uncertainty.
Royal Bank is Canada’s largest bank with a current market capitalization near $183 billion. The stock has held up better than most banks through the recent turmoil. This is largely due to the company’s size and its diversified revenue stream.
At the time of writing, Royal Bank trades near $132 per share. That’s up from the October low around $118 and not far off the $139 it reached in February before the March downturn that hit the bank sector.
Big banks are viewed as being safer bets right now, as investors worry that the recent the failure of several regional banks in the United States is just the beginning of a wave of trouble for the industry. Customers are moving deposits out of smaller institutions and putting the money in larger banks. This influx of cash is a bonus for the big lenders.
Royal Bank avoided the temptation to make a big acquisition in the United States in the past year. Instead, the bank is using its cash hoard to buy HSBC Canada for $13.5 billion in a deal that will add about 130 branches. The acquisition is expected to close in the first quarter (Q1) of 2024.
Royal Bank also decided to beef up its global wealth management operations with its purchase last year of U.K.-based Brewin Dolphin for $2.4 billion.
Investors should see long-term benefits from the two acquisitions.
Royal Bank remains very profitable with fiscal Q1 2023 adjusted return on equity (ROE) of nearly 17%. Investors who buy the stock at the current price are paying about 12.5 times trailing 12-month earnings, so Royal Bank shares are not cheap today, but you get a world-class bank and a 4% dividend yield.
Enbridge has a current market capitalization of about $106 billion. The stock trades near $53 per share at the time of writing compared to as high as $59.50 last June.
The stock was a better bargain in March when it dipped to $50, but investors can still pick up a solid 6.7% yield right now and look forward to steady payout growth over the medium term. Enbridge raised the dividend in each of the past 28 years.
The company just announced solid Q1 2023 earnings with adjusted earnings of $1.7 billion, which is similar to Q1 2022. Distributable cash flow came in at $3.2 billion, up slightly from last year in the same period. Enbridge has achieved its financial guidance in each of the past 17 years. This is the kind of stability investors like to see during challenging economic times.
The current secured capital program of $17 billion will help drive revenue growth. Enbridge also has the power to make strategic acquisitions and investors should see more deals, as the business strategy shifts toward energy exports and renewable energy.
On the oil pipelines side, Enbridge recently announced a new agreement for transporting oil along its core Mainline liquids network. The deal will ensure volumes remain near capacity on the pipelines through 2028. This largely removes the risks of high-volume losses to the Trans Mountain pipeline expansion expected to go into operation in the coming years.
Is one a better pick today?
Royal Bank and Enbridge are both top TSX dividend stocks that deserve to be core TFSA or RRSP holdings.
However, income investors who are concerned about risks in the broader banking sector might want to make Enbridge the first choice right now. Enbridge’s dividend growth will likely be at a slower rate than what you will probably get from Royal Bank over the medium term, but the yield difference right now is significant, and RY stock appears fully valued today.