The RRSP has taken a bit of a back seat to the TFSA in the past few years, but the retirement product still makes a lot of sense for investors who want to reduce their current taxes.
RRSPs also have a much higher contribution limit, and that can really help high-income earners who want to save more than the TFSA allows and have the funds to max out their contributions.
Detractors argue that you have to pay the taxes eventually and the tax rate might not be any different down the road. That’s true, but at least you get to earn a return on the money in the meantime and the structure of the RRSP is good for forcing people to save.
The TFSA is certainly appealing for its tax-free status on any gains earned in the account, but there is no penalty for tapping those funds, unless you replace them too soon, and people might be tempted to use the money for discretionary purchases.
That’s fine if the funds are not supposed to be for retirement, but it could be problematic down the road if the TFSA money is supposed to help pay the bills in the golden years.
The RRSP is specifically designed to help Canadians save for their post-work lives, and that’s why it is still a valuable tool.
Here are the reasons why I think investors with self-directed RRSP accounts should consider BCE Inc. (TSX:BCE)(NYSE:BCE) and Fortis Inc. (TSX:FTS).
BCE Inc.
BCE is a media and telecommunications powerhouse with an arsenal of assets that cover every step of the value chain.
The company wasn’t always this integrated, but strategic purchases over the past few years have positioned the company well to dominate the sector for decades to come. BCE now owns retail outlets, sports teams, radio stations, a television network, specialty channels, Internet sites, and an advertising company.
All of the media content is delivered across multiple platforms along BCE’s state-of-the-art wireless and wireline networks that span the entire country.
In order to protect its kingdom, BCE continues to invest heavily in new infrastructure, and customers are now beginning to see fibre installed right to their doors as a response to demand for high-speed data delivery.
When you add it all up, the company enjoys a formidable competitive advantage that should last for decades.
BCE is very profitable and returns substantial amounts of free cash flow to its shareholders. The stock pays a quarterly dividend of $0.65 per share that yields 4.6%.
Fortis
Fortis operates electricity generation and natural gas distribution assets in Canada, the Caribbean, and the United States.
The company recently locked in some nice profits on the sale of non-core property assets, and the company now derives nearly all of its revenue from regulated operations.
That is good for investors because it means cash flow and earnings are reasonably predictable.
Fortis completed a $4 billion acquisition in the U.S. last year and recently finished an expansion of its hydroelectric project in British Columbia. These assets are contributing nicely to earnings, and Fortis just bumped up its dividend by 10% as a result.
Fortis pays a quarterly dividend of $0.375 per share that yields 4%. The company has increased the payout every year for more than four decades.
