Canadian retirement savers with a bit of extra cash to put in their RRSP are searching for quality stocks that can deliver attractive total returns. The second half of the year might be a bit volatile, so it makes sense to look for top stocks that pay growing dividends and currently trade at reasonable prices.
Canadian National Railway
Any investor who’s bought CN (TSX:CNR)(NYSE:CNI) stock on a dip over the past two decades and held onto the shares has enjoyed good returns. CN currently trades near $147 compared to the 2022 high around $170, so this might be a good time to buy the railway stock for a self-directed RRSP portfolio.
CN grows with the Canadian and U.S. economies. The company is a key part of the economic engine, moving commodities, car parts, and finished goods from international suppliers to domestic buyers, and the other way around. CN’s tracks connect ports on three coasts, giving it a unique advantage in the industry. Railways in general enjoy a wide competitive moat. There are limited sets of lines that cover similar routes and competition with trucks or planes only occurs on certain distances. The surge in fuel costs in the past year is likely making it harder for trucking companies to compete with the railways.
CN gave investors a 19% dividend increase for 2022 and is buying back up to 6.8% of the outstanding stock under the current share-repurchase plan. Heavy capital outlays in recent years have positioned the company for growth and management is now focused on improving efficiency and returning capital to shareholders.
Long-term RRSP investors have done very well with CN stock. A $10,000 investment in the company just 25 years ago would be worth about $460,000 right now with the dividends reinvested.
BCE
BCE (TSX:BCE)(NYSE:BCE) trades near $68.50 per share at the time of writing compared to $74 earlier this year. The pullback looks like a good entry point for new investors and might be attractive for those who already have a small position.
BCE should hold up well when the overall market goes through a rough patch. The generous dividend is rock solid and grows steadily at about 5% per year in nearly all economic circumstances. BCE provides essential wireless and internet services. Homes and businesses won’t cut these subscriptions when times get tough, so BCE has some built-in resistance to a recession. This doesn’t mean the stock is bulletproof. BCE’s media business took a hit during the pandemic, as advertisers closed their wallets. On the telecom side, lucrative roaming fees from business and holiday travelers disappeared during the lockdowns.
That being said, the stock still deserves to be an anchor defensive pick in a retirement portfolio. Investors who buy BCE at the current price can pick up a 5.4% dividend yield. BCE is a good stock to own for RRSP investors who like to use their dividends to buy new shares. The stock is also very popular with retirees who hold BCE in a TFSA to generate tax-free income.
A $10,000 investment in BCE stock 25 years ago would be worth about $250,000 today with the dividends reinvested.
The bottom line on top RRSP stocks
CN and BCE are leaders in their sectors and have delivered strong total returns to patient investors. If you have some cash to put to work in a self-directed RRSP, these stocks deserve to be on your radar.
