Build Your Retirement Portfolio: 2 RRSP Stocks to Buy in September

Have you started planning for retirement? Even if retirement is a long way off, the time to start investing is now so you can reap the rewards of compounding.

Time is money, and this is especially true when it comes to investing and the power of compounding. Those who start investing early in life retire wealthier than those who start later. If you start investing $1,000 a month now for the next 10 years and stay invested for another 10 years, you could have $295,000 by 2042. This calculation assumes you earn an average return of 6%. But if you start 10 years from now, you will have $165,000 by 2042. A 10-year delay costs your retirement portfolio $130,000. Hence, don’t waste time and lose money. 

Building a retirement portfolio with an RRSP 

Many investors are leery of the Registered Retirement Savings Plan (RRSP) because it locks your funds away until retirement. Any withdrawals other than for buying a home or investing in higher education include a withholding tax between 10% and 30%. But if you want to save your working income from tax, and don’t plan to touch this money until retirement, an RRSP is a great place to invest.

One benefit of the RRSP is that it lets you buy and sell stocks without any tax as long as you don’t withdraw the money. That adds to the power of compounding. 

Here’s an example. Every year, John and Mary each invest $15,000 in similar stocks and earn an average return of 6%. The only difference is that John invests through an RRSP and Mary invests through a savings account. In the first year, they both sell $3,000 worth of stocks at a 15% profit of $450.

John can reinvest a $448 investment gain after deducting the brokerage cost, whereas Mary will have to bear the brokerage cost plus tax on the $450 gain before reinvesting the money. This will reduce her reinvestment amount to less than $400. An RRSP lets John keep the extra $45 reinvestment which can compound in the long term.             

Two retirement stocks to buy through an RRSP 

Now that you understand the power of compounding and what it can do for your retirement portfolio, here are two dividend stocks to consider for your RRSP. 

Both stocks have more than a decade-long history of paying dividends which will continue for another decade. 

BCE stock 

This telecom giant is in a sweet spot, leading the 5G race. 5G is the fifth generation technology that reduces latency and offers broadband-like speed on mobile devices. Access to such fast internet speeds with very low latency opens up a new world of opportunities in artificial intelligence (AI) and the internet of things (IoT). The 5G infrastructure could connect millions of devices from drones to robots to autonomous cars with high-speed internet, enabling them to seamlessly perform AI tasks. 

This will open up new subscription opportunities for BCE. Moreover, BCE will benefit from its competitor’s weaknesses. Rogers Communications faced two network outages in 15 months and is lagging behind the 5G investment. Plus, BCE has been growing dividends regularly since 2009, from a $1.54 dividend per share in 2009 to $3.63 in 2022, an average annual rate of 6.3%. BCE can maintain this growth by tapping the enormous 5G opportunity.

TC Energy stock

In 2020, many dividend stocks suspended their dividend reinvestment plan (DRIP), but TC Energy continues to offer it thanks to the resilience of its pipeline business. The DRIP reinvests the dividend amount to buy more shares of the same company. So even if you don’t invest regularly in the stock, DRIP does it for you. RRSP withdrawals are subject to taxation, and collecting cash dividends is inefficient if you have a high taxable income.

If you retire in the next 20-30 years, DRIP will grow your share count significantly. You can then convert DRIP to a dividend payment option and enjoy a higher passive income on more shares. By that time, your tax liability will be lower, and this amount can help you reduce the income gap, as government pensions cover only 30-33% of your average working income.

TC Energy shareholders benefit from the company’s 22-year history of growing dividends at an average annual rate of 7%. The stock that paid a $0.80 dividend per share in 2000 now pays a $3.6 dividend per share! In these 22 years, the stock price surged 526%. Thus, the DRIP gave shareholders the benefit of dividend growth and capital appreciation. To put this in perspective, a $20,000 investment in TC Energy in 2000 would have grown your portfolio to $105,200 in 2022, excluding the compounding effect of DRIP. 

Fool contributor Puja Tayal has no position in any of the stocks mentioned.

More on Dividend Stocks

dividend stocks are a good way to earn passive income
Dividend Stocks

$50,000 in a TFSA Could Pay You $227.16 a Month Without Selling a Share

A $50,000 TFSA can generate a +$200 monthly “paycheque” if you own a reliable monthly payer like CT REIT.

Read more »

Illustration of data, cloud computing and microchips
Dividend Stocks

The Best Discounted TSX Stocks to Snap Up Now

These two discounted TSX stocks are trading well below their 52-week highs even as they continue to show encouraging business…

Read more »

ETFs can contain investments such as stocks
Dividend Stocks

Don’t Fall for Telus’s Dividend: Buy This Monthly High-Yield ETF Instead

Telus (TSX:T) stock has a high yield, but a bad history of dividend cuts.

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

Down 24%: This Monthly Dividend Stock Is a Must-Buy

CAPREIT stock is down 24% over the last year, but its monthly distributions, resilient Canadian rental operations, and discounted valuation…

Read more »

arrows hit bullseye on target
Dividend Stocks

1 Canadian Dividend Champion up 182% for Lifetime Income

Great-West Lifeco stock has surged 182% over the last decade, and its latest earnings growth and expanding retirement business could…

Read more »

woman looks at iPhone
Dividend Stocks

Is Telus a Good Stock to Buy Now?

Telus stock has fallen sharply amid a dividend reset and weaker outlook, but its improving cash priorities and aggressive deleveraging…

Read more »

Man looks stunned about something
Dividend Stocks

If You’re 50 With Less Than $100,000 Saved, I’d Start Here

Being 50 with only five digits saved can feel scary, but 15 years is still enough time for compounding to…

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

This 7% Dividend Stock Could Be the Ultimate Retirement Hack

This 7% dividend stock offers monthly income, defensive properties, and a long runway for rental growth that could appeal to…

Read more »