Discounted Dividend Stocks for Your RRSP Today

Don’t know what to hold in your RRSP? Consider quality businesses such as AbbVie Inc. (NYSE:ABBV) and one other company.

| More on:
The Motley Fool

After filing the 2015 income tax report (that’s due by May 2, 2016), investors will have more contribution room for their registered retirement savings plan (RRSP). Because what’s inside an RRSP is compounded tax deferred, investors can enjoy not having to pay taxes until they withdraw from the account. Ideally, when it’s time to withdraw, you’ll be in a lower tax bracket, so you’ll pay less tax on the RRSP income.

However, you should be careful about what you invest in an RRSP because if you realize any losses there, you won’t be able to offset capital gains like you could in a non-registered account.

So, don’t invest stocks that you expect to get short-term gains from in an RRSP. Instead, invest in dividend companies with strong financial profiles at discounted prices for long-term gains. In fact, the RRSP is the ideal place to hold U.S. companies that pay qualified dividends because there’s no withholding tax on those dividends.

AbbVie Inc. (NYSE:ABBV) is a research-based biopharmaceutical company that focuses on oncology and immunology and has a presence in over 170 countries. AbbVie’s number one drug is Humira with leading positions in gastroenterology, dermatology, and rheumatology. The drug generated 58% of the company’s US$22.8 billion revenue last year!

Another essential drug that AbbVie is developing is Imbruvica, a cancer-treating drug that is becoming a leader in hematologic oncology. On top of that, AbbVie is working on 20 new drugs that could potentially be launched through 2020. So, there’s lots of growth potential for the company.

AbbVie has an S&P credit rating of A and a debt-to-cap ratio of 82%. Most importantly, at about US$57, the shares are trading at a discount of about 11% to its normal multiple and has a decent 4% yield. If AbbVie trades at its normal multiple by the end of the year, it could reach US$72 for a 26% price appreciation.

Manulife Financial Corp. (TSX:MFC)(NYSE:MFC) is another discounted dividend stock. At about $18, it is discounted by about 15% and has a decent yield of 4%. If Manulife trades at its normal multiple by the end of the year, it could reach $23.80 for a 29% price appreciation. Manulife has an S&P credit rating of A and a debt-to-cap ratio of 34%.

If you’re looking to diversify outside Canada, Manulife is a good choice. At the end of 2015, only 34% of its assets were in Canada, while 47% were in the United States, 10% were in Asia, 5% were in Japan, and 4% were in Europe.

Conclusion

AbbVie and Manulife are financially strong companies with margins of safety of 10-15% compared to their normal multiples. And investors can get a safe yield of 4% from them today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng owns shares of AbbVie Inc.

More on Dividend Stocks

A plant grows from coins.
Dividend Stocks

3 Cheap Canadian Stocks That Offer 7% Dividend Yields

Retirees looking to build pension portfolios have an opportunity to buy great TSX dividend-growth stocks at discounted prices.

Read more »

dividends grow over time
Dividend Stocks

2 Dividend Stocks That Can Generate $2,000 in Passive Income by 2025

Investing in high-dividend stocks such as Whitecap can help you generate $2,000 in annual passive income by 2025.

Read more »

edit Woman calculating figures next to a laptop
Dividend Stocks

Should You Invest in BCE Stock for its Dividend?

BCE stock is not yet out of the woods. But this article could change your perspective about the stock and…

Read more »

sale discount best price
Dividend Stocks

Bargain Hunting for Dividends: 3 High-Yield Stocks Haven’t Been This Cheap in Years

Enbridge (TSX:ENB) stock's key enterprise value multiple reached a new multi-year low recently. BCE remains a high-yield dividend play while…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Cash in Your Pocket: 3 TSX Dividend Stocks That Pay Out Monthly

Bolster your monthly income with these three dividends stocks that act like regular paycheques.

Read more »

A plant grows from coins.
Dividend Stocks

Beat the TSX Index With These Cash-Gushing Dividend Stocks

These cash flow-rich stocks are more likely to gush passive dividend income streams long into the future.

Read more »

Golden crown on a red velvet background
Dividend Stocks

Here Are My Top 5 Dividend Aristocrats to Buy Right Now

Canadian National Railway (TSX:CNR) is a Dividend Aristocrat with 27 years of dividend growth.

Read more »

Woman has an idea
Dividend Stocks

The Smartest Canadian Dividend Stocks to Buy With $500 Right Now

Besides their years-long dividend-growth track record, the strong fundamentals of these Canadian dividend stocks make them really attractive to buy…

Read more »