Canadian savers are looking for ways to grow their RRSP contributions into large portfolios that can provide retirement income in addition to company, CPP, and OAS pensions. One popular investing strategy involves buying top dividend stocks and using the distributions to acquire new shares.
Enbridge
Enbridge (TSX: ENB)(NYSE: ENB) is a leader in the North American energy infrastructure sector with extensive oil and natural gas pipeline networks. The company also has natural gas distribution utilities and renewable energy assets.
The rebound in the oil and gas industry is expected to continue for some time, especially for Canadian and U.S. producers who are viewed as reliable sources of the commodities. For example, Europe is looking to replace supplies from Russia due to the war in Ukraine. Other global producers might fill part of the gap, but many face internal conflicts and struggle with asset mismanagement that can interrupt supply.
Enbridge moves 30% of the oil produced in Canada and the United States. The company is also positioned well to serve the liquified natural gas (LNG) facilities that ship the fuel to international buyers. In addition, Enbridge is getting into the new segment of carbon capture and storage. Hydrogen is another big opportunity for the company in the future.
Enbridge raised its dividend in each of the past 27 years. The company is targeting annual distributable cash flow growth of 5-7% through 2024, so the payout increases should continue. Enbridge has the financial firepower to make strategic acquisitions to boost revenue growth. Management spent US$3 billion late last year to buy a strategic oil export terminal in the United States.
At the time of writing, the dividend provides a 6% yield. Investors who purchased $10,000 of Enbridge stock 25 years ago would have more than $280,000 today with the dividends reinvested.
Canadian National Railway
CN (TSX: CNR)(NYSE: CNI) is one of those stocks investors can buy today and simply sit on for decades. The U.S. and Canadian rail companies enjoy wide competitive moats. Companies might have some legacy overlap in certain sections of their networks, but there is ample demand to ensure all are able to generate good revenue and earnings.
CN is unique in the industry with its rail lines that connect to ports on three coasts. This gives CN an even greater competitive advantage. In the current environment of high fuel costs, CN should start to pick up more long-haul business that might otherwise go to trucking companies.
CN generates strong free cash flow. The board raised the dividend by 19% for 2022 and is buying back up to 6.8% of the outstanding common stock under the current 12-month share-repurchase program.
Long-term CN investors have enjoyed attractive total returns. A $10,000 RRSP investment in the stock 25 years ago would be worth $475,000 today with the dividends reinvested.
The bottom line on top RRSP stocks
Enbridge and CN are leaders in their respective industries and have great track records of generating good total returns for investors. There is no guarantee the results will be the same over the next 25 years, but these stocks still deserve to be anchor holdings in a self-directed RRSP portfolio.
