2021 RRSP Deadline: 2 Best Stocks to Buy Now

The 2021 RRSP deadline is coming up real soon. Don’t miss your immediate income tax reduction!

| More on:
Hand writing Time for Action concept with red marker on transparent wipe board.

Image source: Getty Images

The 2021 RRSP deadline is coming up fast on March 1, 2021, for the 2020 tax year. If you want to reduce your income taxes for the 2020 tax year, act fast and contribute to your RRSP.

If you have funds available in your RRSP, what are the best stocks to buy?

Generally speaking, for all your investments, you would aim for the highest returns while managing risks. Your investments will grow and compound tax-free in your RRSP until withdrawal.

When you withdraw funds from your RRSP, ideally when you retire, the amount will be taxed at a lower tax rate than your marginal tax rate now. So, aim for high returns in your RRSP.

Notably, RRSPs give you a tax advantage in terms of U.S. qualified dividends. Normally, 15% of these foreign dividends are withheld by the U.S., but the withholding tax is exempt in RRSPs. Therefore, if you’re buying U.S. stocks that pay nice dividend yields, it would be better to buy them in your RRSP in most cases.

With this backdrop in mind, here are some best stocks you might consider for your long-term RRSP portfolio.

A quality dividend stock for your RRSP

Aerospace and defence stocks like Lockheed Martin (NYSE:LMT) have largely declined recently. Since 2020, LMT stock has fallen about 15% and is an undervalued Dividend Aristocrat you can depend on for safe dividend income.

Lockheed Martin’s earnings have been highly stable through economic cycles. The dividend stock has increased dividends every year since 2003. Its five-year dividend-growth rate is 9.8%.

The dividend stock last increased its quarterly dividend by 8.3% in September 2020, which is still a good growth rate for a large-cap blue-chip company. The dividend is secured by a payout ratio of about 40%.

Currently, the stock yields 3% and could deliver 12-month returns of about 21% based on its cheap valuation. Given its high-quality earnings, LMT is the type of passive-income investment you can buy at a good valuation and hold forever.

A Canadian growth stock to buy before the RRSP deadline

Other than seeking stable returns from income stocks like Lockheed Martin, investors can diversify their RRSP portfolio into high-growth stocks like Enghouse Systems (TSX:ENGH).

Enghouse has historically grown at a superb pace. The +26% correction from the $75 level is an excellent buying opportunity. Despite the selloff, the growth stock has still appreciated at a compound annual growth rate of 23% since 2008.

Enghouse is a diversified software and services company that provides enterprise-oriented software solutions. For example, it offers technology solutions to enable the network and digital transformation for 5G operators. As well, it provides software solutions for transit, supply chain, and public safety companies.

It has been growing organically and by acquisitions. Its five-year earnings-per-share growth rate is +24%, which would make the stock undervalued at about 31 times earnings, assuming the company will be able to resume its normal M&A activities after the pandemic.

Analysts also think the stock is cheap — specifically undervalued by 30%, with a 12-month upside potential of about 44%. Additionally, Enghouse pays a yield of close to 1%. Notably, the tech stock is a Canadian Dividend Aristocrat with a five-year dividend-growth rate of +17%.

The Foolish takeaway

The RRSP can be an important component of your retirement. Take advantage of the tax-deferred growth by contributing to your RRSP regularly as appropriate for your situation. And invest in great businesses like Lockheed and Enghouse to compound your wealth for the long term.

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 Kay Ng owns shares of Lockheed Martin. The Motley Fool recommends Enghouse Systems Ltd. and Lockheed Martin.

More on Tech Stocks

Growth from coins
Tech Stocks

2 Canadian Growth Stocks to Buy and 1 to Sell

The recent volatility in the stock market has created all kinds of opportunities for long-term investors.

Read more »

Overhead shot of young adults using technology at a table
Tech Stocks

3 Cheap Tech Stocks to Buy Right Now

Given their long-term growth prospects and discounted stock prices, I am bullish on these tech stocks.

Read more »

Redwood trees stretch up to the sunlight.
Tech Stocks

These 3 Magnificent Stocks Keep Driving Higher

Constellation Software, Dollarama and another TSX stock have consistently generated positive investment returns. Here’s why they belong in your retirement…

Read more »

A worker uses the cloud for paperless work. tech
Tech Stocks

Wanna Beat the Market? Try These 2 Tech Stocks That Look Undervalued Today

Here's why undervalued TSX stocks such as Vitalhub can help you generate outsized gains in the next 12 months.

Read more »

Target. Stand out from the crowd
Tech Stocks

2 Fintech Stocks I’d Buy and Hold Forever

High-growth fintech stocks such as Nu and Propel are positioned to deliver outsized gains to shareholders in 2024 and beyond.

Read more »

question marks written reminders tickets
Tech Stocks

Down by 31.43%: Is Lightspeed Stock a Buy After Earnings?

While its decline in share price might suggest the company isn’t doing well, the earnings report makes Lightspeed stock seem…

Read more »

Shopping and e-commerce
Tech Stocks

Is Shopify Stock a Buy Now?

Here's why Shopify (TSX:SHOP) ought to remain among the top growth stocks long-term investors want to own in this current…

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Tech Stocks

Topicus Stock Jumps 16% on Killer Full-Year Earnings

Topicus (TSXV:TOI) reported strong earnings after revenues surged higher, and with a volatile market this is exactly what you want…

Read more »