Canadian savers use their self-directed RRSP as part of a broader retirement planning strategy.
The RRSP has been around for a long time and provides Canadians with a great incentive to set some cash aside for their golden years. Contributions can be used to reduce taxable income, which is attractive for investors who find themselves in the higher tax brackets.
People can contribute 18% of their previous year’s earnings to the RRSP, up to a maximum limit, which is set at $26,500 for 2019. Not everyone has this much extra cash available, but you can accumulate your RRSP contribution space that isn’t used and top up the fund later. One thing to keep in mind is that registered pension plan contributions at work normally count toward your RRSP contribution limit for the year.
The secret to building a large RRSP portfolio lies in the power of compounding. When investors buy dividend stocks and use the distributions to acquire additional shares the funds can grow substantially over the course of a few decades. Ending up with a million-dollar RRSP portfolio might sound like a dream, but many people have reached this milestone.
Let’s take a look at three TSX Index stocks that might be interesting picks today.
Nutrien (TSX:NTR)(NYSE:NTR) is a giant in the global crop nutrients market. The company provides potash, nitrogen, and phosphate to countries on large wholesale contracts. Nutrien also has a retail division that sells seed and crop protection products to farmers around the world.
The planet’s population is expected to grow to 10 billion by 2050 from the current level of about 7.8 billion, putting more pressure on farmers to improve crop yields. At the same time, they will have less available arable land due to urban sprawl. Overall, the long-term demand outlook for Nutrien’s products remains robust.
Potash prices are on the rise after a multi-year pullback and Nutrien has the potential to be a free cash flow machine. Management is already anticipating a strong 2019 compared to last year and has raised the dividend twice in the past six months.
Investors who buy the stock today can pick up a yield of 3.2%.
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Toronto Dominion Bank (TSX:TD)(NYSE:TD) is widely viewed as the safest pick among the big Canadian banks due to its focus on retail banking activities. The company’s large U.S. operations also make it a top pick. TD is actually one of the top 10 banks in the United States, with more branches south of the border than in Canada.
The bank is very profitable and does a good job of returning the spoils to investors through dividend hikes and share buybacks. The current distribution provides a yield of 3.9%.
Suncor Energy (TSX:SU)(NYSE:SU) is Canada’s largest integrated energy company with production, refining, and retail divisions. The balanced revenue stream helps offset dips in oil prices, and Suncor has the size and balance sheet strength to acquire strategic assets when the market hits a rough patch.
The stock appears oversold today and investors can pick up a solid 4% yield.
The bottom line
Nutrien, TD, and Suncor are all top players in their industries and should be solid buy-and-hold picks for a self-directed RRSP portfolio. If you only buy one, I would probably make Nutrien my first choice.
The TSX Index is home to other top companies that also deserve to be on your radar today.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Andrew Walker owns shares of Nutrien. Nutrien is a recommendation of Stock Advisor Canada.