A Registered Retirement Savings Plan (RRSP) is a government-sponsored retirement account that allows residents to save money and take advantage of the associated tax breaks. The RRSP is an investing and savings account where you can hold qualified investments such as stocks, bonds, exchange-traded funds, and mutual funds.
Canadian residents should aim to maximize contributions to this registered account, as it significantly lowers their taxable income. For instance, if you earn $100,000 each year, you can allocate up to $18,000 toward your RRSP, which means your taxable income stands at $82,000.
As the RRSP is a retirement account, you should look to buy and hold stocks that will consistently beat the market over the long term. Here are two Canadian stocks to buy and hold forever in your RRSP.
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Brookfield Asset Management stock
One of the largest asset managers globally, Brookfield Asset Management (TSX:BAM) offers you a tasty dividend yield of 3.7%. With more than US$800 billion in assets under management, the company raised $93 billion in capital in 2023.
In the last year, BAM grew fee-related earnings by 6% and distributable earnings by 7% to US$2.2 billion. Given its current dividends, Brookfield Asset Management would pay roughly US$600 million in annual dividends to shareholders, indicating a payout ratio of less than 35%.
The investment giant emphasized the capital raised in 2023 sets it up for strong growth in the near-term as cost growth moderates.
Brookfield Asset Management explained that inflation has cooled off, which should result in interest rate cuts in the second half of 2024. A stable macro environment will drive investor confidence higher, translating to higher transaction volume for asset managers.
Brookfield Asset Management ended 2023 with more than US$100 billion of dry power despite investing more than US$50 billion last year. A key driver of BAM’s dividend growth will be its fee-bearing capital, which rose 9% year over year to US$457 billion in the fourth quarter (Q4) of 2023. Its robust financials allowed BAM to raise dividends by 19% year over year to US$0.38 per share in 2024.
Toronto-Dominion Bank stock
Another blue-chip TSX stock that you can hold in your RRSP is Toronto-Dominion Bank (TSX:TD). Valued at $142 billion by market cap, TD Bank pays shareholders an annual dividend of $4.08 per share, indicating a forward yield of 5%.
In the last five years, TD Bank has wrestled with the COVID-19 pandemic, rising interest rates, inflation, and a sluggish global economy, which has caused the stock to return less than 8% since April 2019. However, its less-than-impressive performance allows shareholders to buy a quality stock at a discount.
In fiscal Q1 of 2024 (ended in January), TD Bank reported revenue of $3.6 billion or $2 per share. Sales were up 5% year over year due to higher fee income and an improved environment for its market-driven businesses. Additionally, the contribution from TD Cowen and higher volumes and deposit margins in the personal and commercial banking segments allowed TD to report stellar Q1 results.
Alternatively, provisions from credit losses or PCLs were higher due to consumer credit normalization and commercial credit migration.
Priced at 10 times forward earnings, TD Bank is quite cheap and trades at a discount of 10% to consensus price target estimates.
