Canadian savers are making their final contributions for the 2019 tax year ahead of the March 2, 2020, deadline.
The RRSP is a useful vehicle for investors who want to set aside additional cash for their golden years while also bumping tax payments way down the road. Contributions to the RRSP can be used to reduce taxable income for the allocated tax year. The funds can then grow tax-free inside the RRSP and are only taxed when withdrawn.
Ideally, the money is removed at a lower marginal tax bracket than when it was contributed. One popular strategy is to start pulling cash out of the RRSP at the beginning of your retirement before starting to receive CPP and OAS pensions.
Which stocks should you buy?
A balanced portfolio is always recommended, and history suggests that quality dividend stocks can serve as solid anchors for a retirement fund.
Let’s take a look at two TSX Index giants that might be interesting RRSP picks in 2020.
Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) continues to make large acquisitions to boost growth at home and abroad.
The bank expanded its wealth management operations in 2018 with the $950 million purchase of Jarislowsky Fraser and the $2.6 billion purchase of MD Financial. The acquisitions added nearly $90 billion in assets under management and set the stage for the creation of a new Global Wealth Management business unit at Bank of Nova Scotia.
On the international side, Bank of Nova Scotia is expanding its Latin American operations. the US$2.2 billion purchase of a majority share of BBVA Chile increased Bank of Nova Scotia’s market share in the country to 14%.
Bank of Nova Scotia also has a large presence in Mexico, Peru, and Colombia. These countries, along with Chile, form the core of the Pacific Alliance trade bloc that is home to more than 225 million people.
Bank of Nova Scotia spent most of 2019 completing the integration of the new wealth management and Latin American assets, and investors should see benefits from the deals expand in the coming years.
The bank has a strong history of dividend growth. Investors who buy the stock today can pick up a 4.8% yield.
TC Energy
TC Energy (TSX: TRP)(NYSE: TRP) is a leading player in the North American energy infrastructure industry with assets in Canada, the United States, and Mexico.
The company is best known for its natural gas pipelines and storage facilities. TC Energy, previously known as TransCanada, bought Houston-based Columbia Pipeline Group for US$13 billion in 2016. The deal added important assets in the Marcellus and Utica shale regions and included important pipeline infrastructure that runs from Appalachia to the Gulf Coast.
The assets put TC Energy in a strong position to be a key player in the emerging LNG sector in the United States.
TC Energy just reported solid 2019 results and raised the dividend by 8%. The board has increased the payout in each of the past 20 years. The new annualized distribution of $3.24 per share provides a yield of 4.2%.
TC Energy has $20 billion in capital projects under development that should support annual dividend increases of 8-10% through 2021 and 5-7% beyond that time frame.
The bottom line
Bank of Nova Scotia and TC Energy are top companies that pay attractive dividends and should be solid picks for a diversified RRSP portfolio.
