RRSP Investors: 2 Top Dividend Stocks to Create Retirement Wealth

These top TSX dividend stocks have made some RRSP investors rich.

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Canadian retirement investors are searching for top dividend stocks to put in their self-directed RRSP portfolios. One popular strategy involves owning reliable dividend-growth stocks and using the payouts to buy additional shares.

Canadian National Railway

CN (TSX:CNR)(NYSE:CNI) had a rough ride in 2021 with its failed bid to buy Kansas City Southern. The distraction put the share price through some uncharacteristic volatility and led to a change in the CEO position.

With the company now back on track and focused on generating higher investor returns, CN looks attractive for a buy-and-hold RRSP portfolio. The company operates a unique network of lines that connects ports on three coasts in Canada and the United States. The rail sector enjoys a wide competitive moat, and operators have the power to raise prices to combat inflationary pressures.

CN is a profit machine and has a great track record of returning free cash flow to investors through dividend increase and share buybacks. The company raised the distribution by 19% for 2022 and is buying back up to $5 billion in common stock under the new repurchase plan through January next year. That’s about 6.8% of the outstanding float.

Long-term RRSP investors have done well with CN stock. A $10,000 investment in the company 25 years ago would be worth close to $600,000 today with the dividends reinvested.

TD Bank

TD (TSX:TD)(NYSE:TD) is another very profitable Canadian company. The country’s second-largest bank by market capitalization earned $14.65 billion in adjusted net earnings in fiscal 2021. That’s pretty good considering the pounding the economy took as a result of the pandemic.

A strong housing market fuelled by low interest rates and significant government aid programs helped TD avoid the worst-case scenario over the past two years. As a result, TD amassed a large war chest of cash it had set aside for potential losses and recently announced a major acquisition to spend the funds.

TD is buying First Horizon in the United States for US$13.4 billion. The deal expands TD’s presence in the American retail banking market by adding more than 400 branches, US$55 billion in loans, and US$75 billion deposits. Once the deal closes TD will be one of the six largest retail banks in the country.

TD raised its dividend by 13% last fall. Investors should see steady dividend increases continue in the coming years. The bank has a compound dividend-growth rate of better than 10% per year over the past two decades.

The stock is down to $99 per share at the time of writing from the 2022 high around $109. Investors have a chance to buy TD on a nice dip and can pick up a yield of 3.6%.

Shareholders have enjoyed attractive long-term returns from TD stock. A $10,000 investment in the shares just 25 years ago would be worth about $250,000 today with the dividends reinvested.

The bottom line on top stocks to build RRSP wealth

CN and TD are leaders in their respective industries and have delivered great long-term results for buy-and-hold RRSP investors. The return in the next 25 years might not be the same, but these stocks remain attractive RRSP picks today.

The strategy of owning top dividend-growth stocks and using the distributions to buy new shares is a proven one for creating retirement wealth.

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.

The Motley Fool recommends Canadian National Railway. Fool contributor Andrew Walker owns shares of Canadian National Railway.

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