Canadian companies are cutting back on pension programs and shifting more work to contract employees.

This means most young people are responsible for putting extra cash aside to help fund their living expenses in the golden years.

One way to do this is to buy dividend-paying stocks inside your RRSP or TFSA and reinvest the distributions in new shares. Over time, the compounding effect can turn a modest initial investment into a significant nest egg.

Let’s take a look at Royal Bank of Canada (TSX:RY)(NYSE:RY) and Suncor Energy Inc. (TSX:SU)(NYSE:SU) to see why they might be good picks.

Royal Bank

Royal Bank earned just under $10 billion in 2015 and is well on the way to breaking through the milestone this year.

The company reported fiscal Q2 2016 net income of $2.57 billion and has earned more than $5 billion year-to-date.

Royal Bank relies on personal and commercial banking for about half (52%) of its revenue, but it also has strong operations in other sectors.

Capital markets contribute about 23% of revenue, wealth management adds 13%, and insurance kicks in 7% of the take. The remaining 5% comes from investor and treasury services.

The balanced revenue stream is a big reason for the company’s strong results. When one segment has a weak quarter, the others normally pick up the slack.

With its recent purchase of City National, a private and commercial bank based out of California, Royal Bank is betting on the U.S. to help drive future growth. The US$5 billion deal gives Royal Bank a strong platform to expand its presence in the sector, and investors could see additional deals in the coming years.

Royal Bank has paid a dividend every year for more than a century. The current payout yields 4%.

A $10,000 investment in Royal Bank 20 years ago would be worth $218,000 today with the dividends reinvested.


Most investors are giving the energy sector a wide berth right now, and that is probably a good idea when it comes to pure-play producers with weak balance sheets.

Suncor is a different beast.

The company is Canada’s largest integrated energy company with large refining and retail operations to complement the upstream oil sands business.

The oil rout has been tough on the production part of the operations, but the other segments are doing quite well.

In fact, the marketing arm, which includes the four refineries as well as the nearly 1,500 Petro Canada retail locations, enabled the company to report positive free cash flow in the second quarter.

Suncor has a rock-solid balance sheet and is taking advantage of the downturn to acquire additional assets at fire-sale prices. When oil recovers, investors should reap the benefits of the recent purchases.

The company isn’t on most dividend radars, but stock actually pays a healthy distribution that yields 3.2%.

What about returns?

A $10,000 investment in Suncor 20 years ago would be worth $166,000 today with the dividends reinvested.

Is one a better bet?

Both stocks are strong long-term picks for an RRSP or TFSA portfolio. If you only have the cash to buy one, I would give the nod to Royal Bank today for its higher yield.

Stock buy alert hits astounding 96% success rate!

The hand-picked investing team inside Stock Advisor Canada recently issued a buy alert for one special type of "bread-and-butter" stock where The Motley Fool U.S. has banked profits on 23 out of 24 recommendations. Frankly, with an astounding 96% success rate that has delivered average returns of 260%, chances are this new pick could deliver life-changing returns as well. Because the team at Stock Advisor Canada fully embraces the same time-tested investing philosophies that have led to countless Motley Fool winners globally. So simply click here to unlock the full details behind this new recommendation and join Stock Advisor Canada.

*96% accuracy includes restaurant stock recommendations from Motley Fool U.S. services Stock Advisor, Rule Breakers, Hidden Gems, Income Investor and Inside Value since each services inception. Returns as of 5/27/16.


Let’s not beat around the bush – energy companies performed miserably in 2015. Yet, even though the carnage was widespread, not all energy-related businesses were equally affected.

We've identified an energy company we think offers one of the best growth opportunities around. While this company is largely tied to the production of natural gas, it doesn't actually produce the gas. Instead, it provides the equipment required to get natural gas from the ground to the end user. With diversified operations around the globe, we think it's a rare find in the industry.

We like it so much, we’ve named it as 1 Top Stock for 2016 and Beyond. To find out why, simply enter your email address below to claim your FREE copy of this brand new report, "1 Top Stock for 2016 and Beyond"!

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