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Should BCE Inc. or Royal Bank of Canada Be on Your RRSP Buy List?

The recent pullback in the Canadian market has RRSP investors taking a hard look at some of the country’s top stocks, including BCE Inc. (TSX:BCE)(NYSE:BCE) and Royal Bank of Canada (TSX:RY)(NYSE:RY).

Let’s see if one of the giants is an attractive pick today for your retirement portfolio.

BCE

BCE is down to $55 per share from $63 just four months ago. The pullback is primarily connected to investor concerns that rising interest rates could trigger a transition of funds from go-to dividend stock to fixed-income alternatives, such as GICs. In addition, rising rates make debt more expensive, and this could potentially put a pinch on cash flow available for distributions. BCE finished Q4 2017 with $18 billion in long-term debt, so rising borrowing costs could have an impact in the coming years.

That said, the pullback in the stock might be overdone.

BCE generates adequate free cash flow to support its generous dividend and continues to grow through acquisitions. The company purchased Manitoba Telecom Services last year in a deal that bumped the giant into top spot in the Manitoba market. BCE also bought home-security provider AlarmForce in a move that provides a variety of new services to offer to its large residential customer base.

Finally, BCE launched Lucky Mobile late last year in a move to re-enter the low-cost prepaid mobile market.

Management recently raised the dividend by 5%, and investors should see the payout continue to increase in step with free cash flow growth. At the time of writing, investors can pick up a 5.5% yield.

Royal Bank

Royal Bank reported fiscal 2017 net income of $11.5 billion. That’s right; the company generates close to $1 billion in profit per month! This might ruffle the feathers of customers who think their fees are too high, but investors are all smiles.

Royal Bank’s success lies in its balanced revenue stream. The company has strong personal and commercial banking, wealth management, capital markets, and insurance divisions that all contribute to the bottom line.

When you have a market cap of more than $140 billion, finding attractive deals that make a sizeable impact isn’t easy, but Royal Bank’s management team isn’t afraid to take advantage of strategic opportunities that make sense. We saw this when the company acquired City National for US$5 billion in late 2015.

Royal Bank has a strong track record of dividend growth. At the time of writing, the stock provides a yield of 3.8%.

The recent pullback in the share price from $108 to $98 puts the stock at about 13 times trailing earnings. This isn’t cheap, but Royal Bank rarely goes on sale.

Is one more attractive?

BCE and Royal Bank should continue to be solid buy-and-hold picks for a dividend-focused RRSP. An equal investment in the two stocks would probably be a good option today. If you only buy one, BCE is starting to look oversold, so I would probably make the telecom giant the first choice.

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Fool contributor Andrew Walker owns shares of BCE.

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