Canadians with self-directed RRSP accounts are searching for the best stocks to buy that can deliver a combination of dividend growth and capital appreciation.
Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) reported fiscal Q1 2022 net income of $2.74 billion compared to $2.4 billion in the same period last year. Adjusted net income rose to $2.15 per share from $1.88 in fiscal Q1 2021.
Adjusted return on equity (ROE) improved to 15.9% from 14.4%.
Canadian banking operations saw adjusted earnings rise 32% to $1.2 billion, driven by solid loan growth. International banking adjusted earnings increased 38% to $552 million. Commercial loans and mortgages combined with lower provisions for credit losses to deliver the strong rebound.
Bank of Nova Scotia’s international business took a hit during the worst of the pandemic, but the operations are on the mend. The international group primarily operates in the Pacific Alliance countries of Peru, Chile, Colombia, and Mexico. The rebound in global commodities prices should help these markets recover quickly.
BNS stock trades for less than 11 times trailing 12-month earnings at the time of writing. That’s starting to look undervalued, and Bank of Nova Scotia now provides a 4.6% dividend yield. The board raised the dividend by 11% for fiscal 2022, and another generous increase could be on the way for 2023.
Bank of Nova Scotia is using excess cash it built up during the pandemic to buy back shares. The company recently increased the number of shares it can repurchase under the plan by 50% to 36 million. Bank of Nova Scotia also announced a $1.3 billion deal to increase its stake in Scotiabank Chile to 99.8%. Additional strategic acquisitions could be on the way, as the bank looks to put extra cash to work to drive growth.
Long-term RRSP investors have done well with Bank of Nova Scotia stock. A $10,000 investment in the shares 25 years ago would be worth more than $170,000 today with the dividends reinvested.
BCE
BCE (TSX: BCE)(NYSE: BCE) is Canada’s largest communications firm with a market capitalization of $66 billion. The company is investing heavily to connect homes and businesses with fibre optic lines. This gives BCE an advantage, as it controls the physical connection to the customer and ensures subscribers to its services have the broadband capacity they need for work and entertainment. BCE is also building out its 5G network. The capital outlays are significant, but the end result should be strong opportunities for revenue growth in the coming years.
BCE is targeting free cash flow growth of up to 10% in 2022. That should support a dividend increase of at least 5% for 2023. The stock currently provides a 5% dividend yield.
A $10,000 investment in BCE 25 years ago would be worth more than $275,000 today with the dividends reinvested.
The bottom line on RRSP total returns
Bank of Nova Scotia and BCE pay attractive dividends that should continue to grow. The companies have delivered solid total returns over the years and should continue to be good stocks to buy for a self-directed RRSP portfolio.
