The RRSP deadline for making contributions for the 2019 tax year is March 2.
As the date approaches, Canadian savers are looking at their contribution room and deciding how much to invest and where they should allocate the funds.
The RRSP was initially launched in the 1950s to help Canadians without company pensions to set aside additional cash to cover retirement expenses. The government tweaked the plan over the years for the better, and the RRSP is now viewed as an essential part of the broader retirement planning process.
Canadians can contribute up to 18% of their annual earned income to a maximum level. That number increases each year and is set at $27,230 for 2020.
Contributions to a company pension plan reduce your RRSP contribution space, but most people still have extra room. The unused RRSP deduction limit can be carried forward. This provides flexibility in the event you have a year with big expenses. It also allows people to save contribution space for years when they are in a higher tax bracket, as RRSP contributions can be used to reduce taxable income.
The CRA calculates your current RRSP deduction limit, or cumulative contribution space. Canadians residents can find the number on their annual Notice of Assessment (NOA) and in their online CRA account.
Let’s take a look at one Canadian dividend stock that might be an interesting pick today to start a balanced RRSP portfolio.
Bank of Nova Scotia
The bank used to be Canada’s most international bank, but has refocused its energy and investments in recent years, exiting 20 countries to concentrate primarily on Canada, the United States, and Latin America.
Bank of Nova Scotia is also allocating more resources to build its wealth management business and recently created a separate Global Wealth group. This comes on the heels of two large wealth management acquisitions in Canada that provided a strong boost to assets under management and added expertise in a number of segments.
On the international front, Bank of Nova Scotia has invested heavily to build a large presence in Mexico, Peru, Chile, and Colombia. The four countries are the core of the Pacific Alliance trade bloc and represent an underbanked market of more than 225 million people.
Bank of Nova Scotia is targeting annual earnings-per-share growth of at least 7% over the medium term. Going forward, it expects to get 40% of earnings from the Canadian banking operations, which include personal and commercial banking activities. The international banking division should contribute 30% and the new wealth management group is targeting a 15% share. The remaining 15% of earnings is anticipated from the global banking and markets operations.
Bank of Nova Scotia has a strong track record of dividend growth, and investors should see the distribution rise each year in line with increased earnings. The current payout provides a yield of 4.9%.
Should you buy Bank of Nova Scotia?
Bank of Nova Scotia is a very profitable company and pays a solid dividend offering above-average yield. The bank has a diversified revenue stream with strong growth opportunities in its core markets.
If you are searching for a reliable dividend stock to start a diversified RRSP portfolio, this company deserves to be on your radar.
The TSX Index is home to many top dividend stocks that have generated significant long-term returns for investors.
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The Motley Fool recommends BANK OF NOVA SCOTIA. Fool contributor Andrew Walker has no position in any stock mentioned.