Your RRSP is the place to put those stocks that you can tuck away for the long term and forget about.
It’s the place to put those stocks you need to be patient with, whose qualities are clear to you, but due to market forces the timing of realizing that value is uncertain — like certain energy stocks.
Your RRSP is also the place to put those stocks that have ample dividend income, which will accumulate tax-free, and, reinvested, provide you with accelerated compounding of your returns — again, like certain energy stocks.
I would like to talk about two energy stocks that I believe are great investments for RRSP investors that will be patient for a recovery in the Canadian energy market.
I know how difficult that is. Energy stocks have recently been a losing proposition. But if you stick with stocks that provide you with a generous and well-covered dividend yield, there is a lot of money to be made in the long term.
Without further ado, here are the two energy stocks to put into your RRSP portfolio for explosive upside and solid dividend income.
Canadian Natural Resources
Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) stock has done nothing in the last three years, oscillating in a range of between $30 and $45 with a downward bias more recently (down 3% year to date).
The ray of sunshine here is in the company’s dividend. While the stock has gone nowhere, it is at least paying shareholders a rising annual dividend that has hit $1.50 per share today for a 4.22% dividend yield.
So, if you invested $10,000, you might not be making much in terms of capital gains, but over three years, that means that you will have made roughly $1,200 in dividend income.
So, we make money while we wait to make even more money — not a bad deal if you can stomach the uncertainty.
Freehold Royalties (TSX:FRU) is a lower-risk energy stock. This company collects royalty streams with none of the risks and operational costs associated with other energy stocks.
Freehold stock is roughly half of what it was trading at in 2016, so shareholders have struggled to realize the upside that potentially exists. But similar to CNQ, Freehold has been paying a generous, well-covered dividend over the years, which has really added to the stock’s returns.
With a current dividend yield of 7.69%, Freehold stock has really compensated shareholders with dividend income. So, again, if you’d invested $10,000 three years ago, you would have made over $2,000 in dividend income over that time. Good compensation while you wait for even better compensation in the form of capital gains.
When you buy heavily cyclical stocks at low prices… and then hold the shares until the cycle reaches its peak… you can make a very healthy profit.
Every investor knows that. But many struggle to identify the best opportunities.
Except The Motley Fool may have a plan to solve that problem! Our in-house analyst team has poured thousands of hours into their proprietary research – and this is the result.
Our top advisor Iain Butler has just identified his #1 stock to buy in 2019 (and beyond).
Fool contributor Karen Thomas owns shares of Canadian Natural Resources and CDN NATURAL RES. Freehold Royalties is a recommendation of Dividend Investor Canada.