Canadians are searching for ways to boost their retirement savings funds. One popular strategy is to hold dividend-growth stocks inside an RRSP and invest the distributions in new shares. This sets off a powerful compounding process that can turn a modest initial investment into a significant nest egg over time. Let’s take a look at Royal Bank of Canada (TSX:RY)(NYSE:RY) and Enbridge Inc. (TSX:ENB)(NYSE:ENB) to see why they might be interesting picks. Royal Bank Royal Bank is an earnings machine. The company reported $2.8 billion in profits in fiscal Q2 2017, putting it on course to blow through the $10…
To keep reading, enter your email address or login below.
Canadians are searching for ways to boost their retirement savings funds.
One popular strategy is to hold dividend-growth stocks inside an RRSP and invest the distributions in new shares. This sets off a powerful compounding process that can turn a modest initial investment into a significant nest egg over time.
Royal Bank is an earnings machine. The company reported $2.8 billion in profits in fiscal Q2 2017, putting it on course to blow through the $10 billion mark for the year.
The balanced revenue stream is a big reason for the company’s success. Royal Bank has strong personal and commercial banking, wealth management, capital markets, and insurance divisions.
The company is also growing its operations south of the border. In late 2015, Royal Bank spent US$5 billion to acquire City National, a California-based commercial and private bank.
City National gives Royal Bank a solid platform to expand its presence in the private-banking segment, and investors could see additional deals in the coming years.
Royal Bank has a strong history of dividend growth and also rewards investors through share repurchases. In the first half of fiscal 2017, the bank bought back 30 million common shares.
The current dividend provides a yield of 3.7%.
Royal Bank has a large Canadian residential mortgage portfolio, which has some investors concerned, but the company is capable of riding out a downturn in the housing market.
In fact, 48% of the portfolio is insured, and the loan-to-value ratio on the remaining mortgages ranges from 49% in Ontario to 63% in Quebec. This means house prices would have to drop significantly before the company takes a material hit.
Enbridge recently closed its $37 billion purchase of Spectra Energy in a deal that creates North America’s largest energy infrastructure company.
The business generates revenue from liquids pipelines, gas pipelines, natural gas utilities, and renewable energy assets.
Enbridge has $27 billion in commercially secured near-term development projects on the go that are expected to generate enough cash flow growth to support annual dividend increases of at least 10% through 2024.
The stock currently yields 4.7%.
Is one more attractive?
Both stocks should be solid buy-and-hold picks for a dividend-focused RRSP portfolio.
That said, Enbridge currently offers a better yield and will likely generate stronger dividend growth over the medium term. As a result, I would make the pipeline company the first choice today.
The Motley Fool Canada's top dividend expert and lead adviser of Dividend Investor Canada, Bryan White, recently released a premium "buy report" on a dividend giant he thinks everyone should own. Not only that - but he's created a must-have, exclusive report that outlines all the alarming traits of dividend stocks that are about to blow up - and how you can avoid them.
For this limited time only, we're not only taking 57% off Dividend Investor Canada, but we're offering you special access to two brand-new reports, free of charge upon signing up. They will outline everything you need to know so you steer clear of dividend burn-outs AND take advantage of the dividend giants in the Canadian market.
While this offer is still available, you can find out how to get a copy of these brand-new reports by simply clicking here.
Fool contributor Andrew Walker owns shares of Enbridge. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.