As pension plans go the way of the dodo bird, Canadians are increasingly responsible for setting aside cash to fund their retirement.
One way to do this is to buy quality dividend stocks inside an RRSP.
Bank of Nova Scotia
Bank of Nova Scotia is Canada’s most international bank.
The company has focused most of its foreign investment on Latin America with Mexico, Peru, Chile, and Colombia representing the bank’s largest operations in the region. These countries form the core of the Pacific Alliance–a trade bloc set up to promote the free movement of capital and goods with a combined market of more than 200 million consumers.
As businesses increase trade among the member states, they need a wide variety of cash management products and services. Bank of Nova Scotia’s presence in each market means it is positioned well to capitalize on the opportunity.
In fact, the region is already posting impressive results.
International banking delivered a 9% increase in fiscal Q3 net income compared with the same period last year. Latin American loan growth came in at 14% and deposits in the region jumped 17% year over year.
Bank investors are concerned about oil exposure and housing risks in Canada. Bank of Nova Scotia’s drawn oil and gas loans are higher than its peers, but represent less than 4% of the company’s total loan book.
As for housing, nearly 60% of the company’s $191 billion in Canadian mortgages is insured, and the loan-to-value ratio on the remainder is about 50%. This means house prices would have to fall significantly before the bank takes a material hit.
Bank of Nova Scotia pays a quarterly dividend of $0.74 per share that yields 4.2%.
Inter Pipeline owns oil sands infrastructure, conventional oil pipelines, natural gas liquids (NGL) extraction assets, and a Europe-based liquids storage business.
The diversified revenue stream has helped the company weather the oil storm reasonably well, and investors even received a nice boost to the dividend last November.
Inter Pipeline is taking advantage of the difficult market conditions to add strategic assets at attractive prices. The company recently announced a $1.35 billion deal to buy NGL extraction facilities from The Williams Companies.
The purchase price is at a 45% discount to the cost of the infrastructure, so there is potential for strong returns once the market recovers.
Inter Pipeline pays a monthly dividend with a yield of 5.7%.
Is one a better bet?
Both stocks are attractive RRSP picks. Earlier in the year I would have picked Bank of Nova Scotia, but the stock has rallied significantly, and that has wiped out the advantage.
If you think the oil sector has bottomed out, I would go with Inter Pipeline as the first pick today.