Retirement investors are searching for top TSX dividend stocks to hold inside their self-directed Registered Retirement Savings Plan (RRSP). Canadian Natural Resources (TSX:CNQ) and Fortis (TSX:FTS) have long track records of dividend growth and might be interesting picks right now.
Canadian Natural Resources
CNRL is Canada’s largest oil and natural gas producer with a current market capitalization near $90 billion. The stock trades for close to $82 per share at the time of writing compared to $70 in June and a peak of around $88 in 2022.
Oil and natural gas producers rely on commodity prices to determine their revenues. This makes cash flow unpredictable and sometimes volatile. In good times, energy companies are cash machines churning out substantial profits and free cash flow. When energy markets collapse, as they did in the early months of the pandemic, revenues can plunge, and margins evaporate. Share prices tend to move with the commodity markets, so you need to have a strong tolerance for volatility to own energy stocks.
That being said, some energy producers are better than others, and CNRL sits near the top of the list. Despite the turbulence that periodically occurs in the oil and natural gas markets, CNRL has managed to raise the dividend in each of the past 23 years. Investors have received a compound annual dividend growth rate of better than 20% over that timeframe. In addition, CNRL gave investors a bonus dividend of $1.50 per share last summer. This is on top of the current quarterly base distribution of $0.90 per share.
CNRL has a strong balance sheet to ride out tough times. Management took advantage of the cash windfall in 2021 and 2022 to reduce debt and buy back stock as well as hike the base dividend. As net debt continues to decline, the company intends to return more cash to shareholders. This means dividend growth should continue.
At the time of writing, CNQ stock provides a 4.4% dividend yield.
Fortis
Fortis is a utility company with $65 billion in assets located in Canada, the United States, and the Caribbean. Nearly all of the revenue comes from rate-regulated businesses such as power generation, electric transmission, and natural gas distribution.
In this case, revenue and cash flow tend to be very predictable and reliable. Electricity and natural gas are required by homes and businesses, regardless of the state of the economy. That makes Fortis a good stock to own if you are concerned that Canada and the United States are heading into a recession.
Fortis grows by making strategic acquisitions and through internal projects. The current $22.3 billion capital program is expected to boost the rate base by roughly a third over five years. As a result, revenue and cash flow should increase enough to support planned annual dividend increases of 4-6%.
Fortis raised the dividend in each of the past 49 years. The stock trades near $54 compared to a high of around $65 in 2022. Investors who buy the dip can get a 4.2% dividend yield.
Is one a better RRSP pick?
CNRL and Fortis pay attractive dividends that should continue to grow. Both stocks have generated solid total returns for long-term investors and deserve to be on your radar for a self-directed RRSP.
At the current share prices, I would probably make Fortis the first pick and look to add CNRL on the next pullback.
