Canadian savers are doing their best to set aside some cash for retirement, but low interest rates are making the task more difficult.
In the old days, you could simply buy GICs or Canada Savings Bonds and get enough interest to grow the funds at a reasonable pace, but that isn’t possible today, and the low interest rate environment is likely to be here for some time.
Fortunately, investors can still build a respectable nest egg by buying dividend-growth stocks and reinvesting the dividends in new shares.
Which stocks should you buy?
Bank of Nova Scotia
Investors often overlook Bank of Nova Scotia when choosing a bank stock for their portfolios, but that might be a mistake.
What’s the scoop?
The company has invested heavily in Latin America with a specific focus on Mexico, Peru, Colombia, and Chile. These four countries form the core of the Pacific Alliance, a trade bloc set up enable the free movement of capital and goods.
Combined, the four markets hold more than 200 million consumers.
As the middle class expands, demand for credit cards, lines of credit, car loans, and investment products are increasing, and Bank of Nova Scotia is positioned well to benefit.
Earnings from the international group topped $2 billion in fiscal 2016, and strong results are expected to continue.
Bank of Nova Scotia has a strong track record of dividend growth. The current payout yields 3.8%.
Inter Pipeline owns natural gas liquids (NGL) extraction assets, conventional oil pipelines, oil sands pipelines, and a European liquids storage business.
The company has survived the oil rout in good shape, and management has taken advantage of the downturn to add strategic assets.
For example, Inter Pipeline recently closed its $1.35 billion acquisition of two NGL extraction facilities from The Williams Companies. The purchase was made with a significant discount to the construction cost of the assets, so Inter Pipeline is set to see some strong returns on the investment when the market improves.
The new NGL facilities, along with a strong portfolio of other development opportunities, should provide adequate cash flow growth to support continued dividend hikes.
Inter Pipeline’s dividend yields 5.6%.
Is one more attractive?
Both stocks are solid buy-and-hold picks for an RRSP portfolio.
With President Trump now in the White House and oil prices on the rebound, Inter Pipeline might offer better upside potential in the near term as well as the higher dividend yield.
Bank of Nova Scotia is still a top choice, but the stock has enjoyed a huge rally in the past year and is probably fully valued right now.
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Fool contributor Andrew Walker has no position in any stocks mentioned.