Canadian savers are searching for quality stocks to add to their self-directed RRSP portfolios. The market pullback is giving investors a chance to buy some top TSX dividend stocks at discounted prices.
Royal Bank
Royal Bank (TSX: RY)(NYSE: RY) trades near $126 per share at the time of writing compared to nearly $150 earlier this year. At the current price, investors can pick up RY stock for just over 11 times trailing 12-month earnings and get a solid 3.8% dividend yield.
Royal Bank is a profit machine. The bank reported fiscal 2021 income of more than $16 billion and gave investors a generous 11% dividend increase late last year. Results in the first fiscal quarter of 2022 came in strong as well, with profits of $4 billion.
Management recently announced a $2.6 billion deal to buy a wealth management business in the United Kingdom. Royal Bank is sitting on significant excess cash it built up during the pandemic to ride out the downturn and is now putting the funds to work. Additional deals could be on the way.
Buying Royal Bank stock on dips has traditionally proven to be a savvy investing strategy. A $10,000 investment in RY stock 25 years ago would be worth about 200,000 today with the dividends reinvested.
CN Rail
Canadian National Railway (TSX: CNR)(NYSE: CNI) trades for close to $144 at the time of writing compared to $170 near the end of March. The pullback gives RRSP investors a chance to buy one of Canada’s best dividend-growth stocks at reasonable price.
CN raised the dividend by 19% for 2022. Another big increase is likely on the way for 2023. CN had a bumpy ride in 2021 with a failed takeover bid for Kansas City Southern. This led to an ugly battle with a major shareholder that likely contributed to the departure of CN’s CEO at the start of 2022.
The distractions of last year are largely in the rear-view mirror, and CN is now focused on driving strong returns to shareholders. Capital investment is capped and the company is buying back up to 6.8% of the outstanding stock under the current share-repurchase program.
CN generates significant profits and free cash flow in most economic situations and the company has the power to increase prices when its operating costs get hit by inflationary pressures. This is important for investors who are looking for businesses that can do well in the current environment.
CN is another stock that tends to deliver good long-term returns to patient investors. A $10,000 investment in CN 25 years ago would be worth around $460,000 today with the dividends reinvested.
The bottom line on top RRSP stocks to buy for total returns
Royal Bank and CN are leaders in their industries and have proven track records of delivering steady dividend growth and rising share prices over time. The stocks appear undervalued after the recent correction and should be solid picks for a self-directed RRSP focused on long-term total returns.
Buying in these situations takes courage, but the positive impacts on a retirement portfolio can be substantial.
