Canadian savers are using their self-directed RRSP to build personal pension funds. Top stocks tend to deliver growth through a combination of dividend increases and capital gains.
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Canadian National Railway
CN (TSX: CNR)(NYSE: CNI) is a leader in the North American rail sector. The company has an unmatched network of routes that connects ports on both coasts in Canada with the Gulf Coast in the United States. This gives CN a competitive advantage when securing business from domestic and international customers.
CN generates revenue in both Canadian and American dollars, making the stock a good holding for investors who want to get exposure to the U.S. economy through a Canadian company. CN transports goods for a variety of segments, including grain, coal, crude oil, forestry, automotive, fertilizer, and finished goods. When one group has a slow quarter, the others often make up the difference.
CN had some distractions last year when it tried to buy Kansas City Southern in the United States. The attempt caused friction with a major shareholder and eventually led to a change of leadership. The dispute is now resolved, and new management is focused on driving more efficiency into the business and returning profits to shareholders.
CN raised the dividend by 19% for 2022. The board also approved a share-buyback plan that will enable CN to repurchase up to $5 billion in stock over a 12-month timeframe.
CN generates strong free cash flow and investors should see steady dividend increases continue for years. Long-term RRSP investors have done well with the stock. A $10,000 investment in CN just 25 years ago would be worth just over $600,000 today with the dividends reinvested.
BCE
BCE (TSX: BCE)(NYSE: BCE) is a good defensive stock to add to a self-directed RRSP portfolio. The communications giant provides essential mobile and internet services to customers across the country. BCE has the power to raise prices when costs go up and a strong balance sheet gives BCE the financial means to make the billions of dollars of investments needed to ensure the wireline and wireless networks deliver world-class broadband services.
BCE expects to connect 900,000 customers with new fibre optic lines right to their buildings this year and is expanding its 5G network after spending $2 billion on new spectrum in 2021. These initiatives should set the stage for revenue growth in the coming years.
BCE raised the dividend by 5% for 2022. A similar increase is likely on the way for next year. BCE is targeting free cash flow growth of 2-10% in 2022.
The stock is up 11% this year, but more gains should be on the way, as investors seek out high-yield stocks for income and total returns. BCE’s dividend currently provides a 5% yield. A $10,000 investment in BCE 25 years ago would be worth about $285,000 today with the dividends reinvested.
The bottom line on top stocks for RRSP total returns
CN and BCE are leaders in their respective sectors. The companies generate steady revenue and have great track records of increasing dividends. If you have some cash to put to work inside a self-directed RRSP, these stocks deserve to be on your radar.
