Canadian savers are taking advantage of their RRSP contribution space to build self-directed pensions. One popular strategy involves owning top dividend stocks that have great track records of dividend growth.
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Royal Bank
Royal Bank (TSX: RY)(NYSE: RY) generated $16.1 billion in net earnings in fiscal 2021. The bank will have to give some of that up as a result of the new bank tax announced in the 2022 budget and all the Canadian banks will pay a corporate tax rate of 16.5% instead of 15% going forward. The new tax hit was expected and shouldn’t have a material impact on Royal Bank shareholder over the long haul.
Royal Bank has a balanced revenue stream that comes from personal and commercial banking, wealth management, capital markets, investor and treasury services, and insurance operations. It is the largest bank by market capitalization in Canada and ranked among the top 10 globally.
Royal Bank finished fiscal 2021 with significant excess cash it built up to ride out the pandemic. The bank gave investors a dividend increase of 11% late last year. Another big payout hike is probably on the way for 2023. Royal Bank is also buying back shares and just announced a $2.6 billion acquisition to boost its wealth management operation in the United Kingdom.
Royal Bank stock has dropped from the 2022 high around $149 to the current price near $137. This puts price-to-earnings multiple at a reasonable 12.2 times trailing 12-month profits. Additional volatility should be expected in the near term, but RRSP investors with a buy-and-hold strategy might want to start nibbling on RY stock on the latest dip.
The current dividend yield is 3.5%.
Enbridge
Enbridge (TSX: ENB)(NYSE: ENB) is a giant in the North American energy infrastructure sector. The company transports nearly a third of the oil produced in Canada and the United States. Enbridge is also a powerful force in the natural gas segment. The company’s gas transmission network moves a fifth of the natural gas used by Americans, and Enbridge has natural gas-distribution utilities that serve more than three million customers.
In addition, Enbridge is growing its renewable energy group and is getting into the emerging market of carbon sequestration and storage. The recently announced 2022 federal budget has cash earmarked for ESG investments like carbon capture, so Enbridge could benefit from the program.
Earnings increased 20% in 2021 compared to 2020. The rebound in the oil and gas sector is expected to continue for some time. Global buyers are looking for secure oil and natural gas supplies from the United States and Canada. This should benefit Enbridge’s operations, including its recently acquired oil export terminal in Texas.
The stock picked up a nice tailwind in recent months, but more gains should be on the way. Management is targeting steady 5-7% annual growth in distributable cash flow supported by roughly $6 billion per year in targeted capital projects. New acquisitions could boost the cash flow growth even higher. As a result, investors should see dividend hikes trend in the 3-5% range over the medium term.
Investors who buy the stock at the time of writing can pick up a solid 5.9% dividend yield.
The bottom line on top RRSP stocks for total returns
Royal Bank and Enbridge are leaders in their respective industries and have excellent track records of delivering attractive total returns for buy-and-hold RRSP investors. If you have some cash to put to work, these stocks deserve to be on your radar.
