If you’re one of those who procrastinate when it comes to making a decision about retirement, then don’t panic. You still have some time before the March 1st deadline for last year’s RRSP contributions.
For many taxpayers, beefing up their RRSP as much as they can is the best financial move. Sparing money each year to buy more of quality dividend stocks will set you up for a smooth sailing during your golden years.
This move also reduces your taxable income and cuts your tax bill. For 2017, Canadians under 69 can contribute as much as 18% of their income, up to a maximum of $26,010.
If you’ve decided to make your contribution for this year, the next step is to buy quality stocks that help grow your income. Let’s take a look at Emera Inc. (TSX: EMA) and Suncor Energy Inc. (TSX: SU)(NYSE: SU) to see which energy stock is a better buy for your RRSP this year.
Emera
Emera is a Halifax, Nova Scotia-based utility which is growing its operations in North America and Caribbean countries. The biggest growth driver for Emera has been its acquisition of TECO Energy, Inc. in 2016, creating a combined entity which is among the top 20 North American regulated utilities.
Emera stock has lost about 16% since early December, as investors have avoided stocks that are sensitive to interest rate moves. But this weakness has opened a window of opportunity for long-term income investors to buy this solid dividend stock.
Trading at $41.37, Emera’s shares now yield an attractive 5.4%. This annual dividend yield comes with a multiple of 14.5 times estimated 2018 earnings, which is close to the company’s historical low of about 14 last reached during the financial crisis.
Another reason to like Emera stock is that the utility gets more than 85% of its consolidated earnings from its regulated business, which is a great stabilizing factor for its bottom line and cash flows. Regulated earnings growth is expected to support the company’s 8%-per-year dividend-growth target through 2020.
Suncor
I am a big fan of Suncor, Canada’s largest oil sands producer. My bullish call on this company is based on its strong operational readiness to take advantage of the changing market conditions.
Since the 2014 oil downturn, Suncor management has undertaken an aggressive cost-cutting program. During the past five years, Suncor’s cost to dig a barrel of crude oil has fallen to $23.80 in 2017 from $37 in 2013, representing the lowest level achieved in more than a decade.
With crude prices trading more than $60 a barrel, Suncor expects to generate over $10 billion in funds from operations in 2018, giving it a cash flow yield of ~15%.
Trading at $47 and with an annual dividend yield of 3.32%, Suncor stock has great income appeal for RRSP investors. Suncor has a solid history of rewarding investors with growing dividends. This month, Suncor hiked its quarterly dividend by 12.5% to $0.36 per share, marking the 16th year of consecutive annualized dividend increases.
The bottom line
I like both Emera and Suncor for any RRSP portfolio. Both stocks are well positioned to reward long-term investors with regular payouts and decent capital gains. I’d divide my cash equally to take a position in these energy sector gems.
