The RRSP, or Registered Retirement Savings Plan, is an essential vehicle used by Canadians to reduce their tax bill each year. You can contribute up to 18% of your taxable income towards the RRSP and lower your taxable income by that amount. So, if you earn $100,000 each year, you can contribute up to $18,000 towards the RRSP, lowering your taxable income to $82,000.
As the RRSP is a retirement account, it is ideal to hold quality stocks that can derive outsized gains over time. Here are three stocks RRSP investors should buy in 2024.
Microsoft stock
A mega-cap giant, Microsoft (NASDAQ: MSFT) has created game-changing returns to shareholders in the last two decades, rising an astonishing 2,110% in this period. Despite its massive size, Microsoft stock has surged over 50% in 2023 due to the rally and optimism surrounding artificial intelligence (AI) companies.
Microsoft enjoys an early mover advantage in the disruptive AI segment with its multi-billion-dollar investment in OpenAI. It has also rebounded from the slowdown in the tech sector and experienced accelerating growth and robust results in the public cloud business.
Microsoft is a well-diversified company with a leading position in verticals such as cloud computing, enterprise software, gaming, and even social media, given it owns LinkedIn.
Priced at 12.6 times forward sales and 37 times forward earnings, MSFT stock is very expensive. But with an operating margin of over 35%, analysts expect the tech giant to increase earnings by 14% annually in the next five years.
Royal Bank of Canada stock
The largest TSX stock, Royal Bank of Canada (TSX: RY), also offers shareholders a tasty dividend yield of 4.1%. Rising interest rates and a sluggish macro environment have dragged RBC stock lower in recent months, increasing the dividend yield in the process.
While the banking sector is highly cyclical, RBC’s entrenched position, conservative lending policy, strong balance sheet, and growing earnings base have allowed it to deliver market-thumping returns over time.
Since December 2003, RBC stock has returned 336% to shareholders. After adjusting for dividends, total returns are closer to 840%. Despite these returns, RBC stock is priced at 12 times forward earnings. Further, the banking giant has raised dividends by 9.3% annually since late 2003, which is exceptional for a bank stock.
Cargojet stock
The final TSX stock on my list is Cargojet (TSX: CJT), which has already returned 880% to shareholders since December 2013. However, the TSX stock also trades 53% below all-time highs, allowing you to buy the dip.
Valued at $2 billion by market cap, Cargojet provides overnight air cargo services in Canada. It operates domestic air cargo network services between 16 Canadian cities while providing aircraft to customers on an ACMI (aircraft, crew, maintenance, and insurance) basis operating between Canada, the Americas, and Europe.
Cargojet is wrestling with a challenging macro environment as higher interest rates are impacting disposable incomes for households. Further, volumes for discretionary items are softening, which is offset by volumes for essential goods.
Cargojet has reduced spending on capital expenditures to navigate a macro slowdown and boost its liquidity position. Priced at 34 times forward earnings, CJT stock trades at a discount of 20% to consensus price target estimates.
