Canadians are searching for ways to set aside sufficient cash to fund a comfortable retirement.
One strategy involves owning top-quality dividend-growth stocks inside an RRSP account and investing the distributions in new shares. This sets off a powerful compounding process that can turn a modest initial investment into a nice nest egg over time.
In addition, the contributions can be used to reduce your taxable income, which is attractive for Canadians who are currently in a high tax bracket.
Let’s take a look at BCE Inc. (TSX: BCE)(NYSE: BCE) and Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) to see why they might be attractive choices today.
BCE
BCE acquired Manitoba Telecom Services earlier this year in a deal the pushed the telecom giant into top spot in the Manitoba market and set the company up for an expansion of its presence in the western provinces.
The launch of Lucky Mobile, the company’s new low-cost prepaid wireless service, should help BCE make further inroads in the prepaid market.
Most people think of BCE as a phone, internet, and TV service provider, but the company also has a large media division that includes sports teams, a television network, specialty channels, radio stations, and an advertising business.
In addition, BCE recently announced a deal to acquire AlarmForce.
When you add the media assets to the world-class wireline and wireless network infrastructure you get a powerful business that is capable of interacting with most Canadians on a daily basis.
BCE generates ample free cash flow to support the generous dividend, and investors should see the distributions continue to grow at a steady pace.
At the time of writing, BCE provides a yield of 4.6%.
Bank of Nova Scotia
Investors often overlook Bank of Nova Scotia in favour of its larger peers, but that might be a mistake.
Why?
The company has spent billions in recent years to build a strong presence in Latin America, with a specific focus on Mexico, Colombia, Peru, and Chile.
These countries make up the core of the Pacific Alliance, which is a trade bloc set up to promote the free movement of goods and capital among the member states.
This economic zone contains more than 200 million consumers, and banking penetration is much lower than it is in more developed nations. As the middle class grows, demand for loans and investment products should increase.
Bank of Nova Scotia is already seeing strong results from the region. The international operations account for close to 30% of earnings, and growth in Latin America is outpacing Canada.
The company just announced a $2.9 billion deal in Chile, so management must be convinced the long-term opportunities are very attractive.
Bank of Nova Scotia has a strong track record of dividend growth. The current payout provides a yield of 3.9%.
Is one a better bet?
At this point, I would probably split a new investment between the two stocks to benefit from BCE’s higher yield while using Bank of Nova Scotia to get exposure to emerging market growth.
