RRSP investors are constantly searching for undervalued top TSX stock that can deliver reliable dividend growth and capital gains to build a retirement portfolio.
Canadian National Railway
CN (TSX:CNR)(NYSE:CNI) stock has been more volatile in 2021 than investors typically see with the railway giant. The stock fell from $148 to $125 after CN decided to outbid CP Rail to buy Kansas City Southern, a smaller U.S. railway with strategic routes in Mexico.
The US$30 billion offer was 20% above an already generous price that KCS had agreed to accept from CP Rail. The market didn’t like the move, likely due to the large price tag and the impact on CN’s balance sheet. CN halted its share-buyback program, and investors wondered if they would receive a decent dividend hike in 2022.
Institutional shareholders raised a fuss, as well. In the end, U.S. regulators effectively forced CN to abandon the effort, and KCS is now back in the arms of CP Rail at a revised agreement of US$27 billion. The announcement sent CN soaring to $168 per share. CN’s CEO is retiring in January and the board put the share repurchase plan back in progress.
Recent news that the candidate for CEO favoured by a large investor just removed himself from the hiring process sent the share price into a new plunge. CN currently trades near $155 per share.
Ongoing volatility should be expected in the next few weeks until the new boss is named, but the stock now appears oversold for buy-and-hold investors. A big dividend increase could be on the way in 2022 to make up for the chaos of the past year, and CN remains a very strong player that generates healthy profits and free cash flow.
A $10,000 investment in CN just 20 years ago would be worth about $185,000 today with the dividends reinvested. Buying this stock on dips typically results in good long-term returns.
TC Energy (TSX:TRP)(NYSE:TRP) is a leader in the energy infrastructure sector with $100 billion in assets located in Canada, the United States, and Mexico. The primary business is natural transmission and storage. The company also has power-generation facilities and oil pipelines.
TC Energy has $29 billion in development projects on the go that will drive revenue and cash flow growth over the next few years to support average annual dividend increases of 3-5%. The stock trades near $58.50 per share at the time of writing. That’s down from $68 in October and off the $75 the stock fetched before the pandemic.
Natural gas has a bright future in North America and around the globe. Countries are increasingly using natural gas to replace coal and oil to produce power as they transition to cleaner energy and renewable energy alternatives.
Investors who buy the stock now can pick up a solid 5.9% dividend yield.
The bottom line on top stocks to buy for an RRSP
CN and TC Energy are top TSX stocks that have great track records of dividend growth and should deliver attractive total returns for investors in the coming years. If you have some cash to put to work in a self-directed RRSP, these stock look cheap right now.