Canadian savers are topping up their RRSP accounts ahead of the 2018 tax year deadline, and many are wondering how they should invest the funds.
One proven strategy involves buying dividend stocks and using the distributions to acquire additional shares. Over time, the power of compounding can turn small original investments into a significant RRSP portfolio.
Let’s take a look at three TSX Index leaders that might be interesting picks right now for your self-directed RRSP.
Global population growth is expected to continue at a steady pace in the coming decades, and that poses a challenge for the planet’s farmers, who will be asked to produce more food with consistently less land.
One part of the solution involves the use of fertilizers to boost crop yield, and Nutrien is the world’s largest crop nutrient company. In addition, the firm has a growing retail division that sells seed and crop protection products to farmers around the world.
Nutrien reported adjusted net earnings of US$2.69 per share in 2018 and expects 2019 to be US$2.80-3.20 per share, supported by strong demand and improved pricing.
The company raised the dividend by 7.5% for 2019, and investors should see strong free cash flow growth drive the payout higher in the coming years.
The current distribution provides a yield of 3.3%.
Royal Bank generated profits of more than $12 billion in fiscal 2019. That’s an impressive sum, and despite the company’s size, earnings growth is expected to continue at a pace of 7-10% per year.
The bank is strong across a variety of segments in the financial sector, including personal and commercial banking, capital markets, wealth management, insurance, and investor and treasury services.
Royal Bank has the financial firepower to invest in digital banking platforms to ensure it remains competitive as the industry evolves.
Dividend growth came in at 8% in 2018, and the distribution should rise in step with earnings growth in the coming years. Investors who buy today can pick up a yield of 4.7%.
Telus is a major player in the Canadian communications market, providing mobile, internet, and TV service to customers across its world-class network infrastructure.
The company to continues to invest in upgrades to ensure it can meet growing broadband demand, and its focus on customer satisfaction is showing up in the results. Telus has the lowest postpaid mobile churn rate in the industry and added 164,000 new customers in Q4 2018. That was the best Q4 result in four years.
Free cash flow improved 24% in 2018, and management expects to see strong results again in 2019 now that the company is past the peak of a major capital program.
Telus raised its dividend by just under 8% in the past year. The existing quarterly payout of $0.545 per share provides an annualized yield of 4.6%.
The bottom line
Nutrien, Royal Bank, and Telus are all top stocks in the TSX Index and should be solid buy-and-hold picks for a dividend-focused RRSP portfolio.