Canadian savers are searching for ways to set some cash aside for retirement.
One popular strategy involves owning dividend-growth stocks inside an RRSP and using the distributions to purchase new shares. This sets off a powerful compounding process that can turn a modest initial investment into a nice nest egg over time.
Let’s take a look at three top Canadian stocks that have strong track records of dividend growth and provide balanced exposure across sectors and geographic regions.
Bank of Nova Scotia (TSX: BNS)(NYSE: BNS)
Investors often skip Bank of Nova Scotia in favour of its larger peers, but that might be a mistake, especially for a buy-and-hold RRSP portfolio.
Why?
The company has invested heavily in its international operations, with a specific focus on Mexico, Peru, Chile, and Colombia. These four countries form the core of the Pacific Alliance, which is a trade bloc set up to promote the free movement of goods and capital.
As the middle class grows, demand should increase for loans and investment products.
The international operations already provide close to 30% of Bank of Nova Scotia’s net income, and that could expand in the coming years.
Bank of Nova Scotia pays a reliable dividend that currently yields 4%.
Fortis Inc. (TSX: FTS)(NYSE: FTS)
Fortis owns natural gas distribution, power generation, and electric transmission assets in Canada, the United States, and the Caribbean. The company has grown over the years through strategic acquisitions, and most of the recent investment has been in the United States.
In fact, more than half of the company’s assets are now located in the U.S., providing investors with an attractive way to get exposure south of the border through a Canadian utility.
Fortis has raised its dividend every year for more than four decades and plans to increase the payout by at least 6% per year through 2022. The current dividend yield is 4%.
BCE Inc. (TSX: BCE)(NYSE: BCE)
BCE made two acquisitions and launched a new business in the past year, strengthening its powerful position in the Canadian communications market.
The purchase of Manitoba Telecom Services bumped BCE into the top spot in the Manitoba market and gave the company a strong base in central Canada.
BCE also recently closed its purchase of home security provider AlarmForce. The move gives BCE another portfolio of products and service to offer its large residential client base, which stretches from Manitoba to the east coast.
Finally, BCE launched Lucky Mobile, its new low-cost prepaid phone service.
The new assets should help support cash flow and dividend growth. BCE already generates significant free cash to cover its generous payout, which provides a 5.4% yield today.
The bottom line
If you are looking for top picks to start an RRSP, Bank of Nova Scotia, Fortis, and BCE deserve to be on the radar.
An equal investment in all three stocks would provide good exposure to Canada, the United States, and Latin America, while generating an average dividend yield above 4%.
