RRSP Investors: 2 Great Dividend Stocks to Buy for Total Returns

Here’s why Canadians can consider holding blue-chip TSX dividend stocks such as CNR and CNQ in their RRSP portfolios right now.

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The Registered Retirement Savings Plan (RRSP) is a registered account that helps Canadians lower their tax liability each year. Canadian residents can contribute up to 18% or a maximum of $31,560 of their earned income in 2024 towards the RRSP. So, if you earn $100,000 annually, you can contribute up to $18,000 towards the RRSP, lowering your tax bill to $82,000 for the year.

Investors should note that the Canada Revenue Agency levies taxes on RRSP withdrawals. However, as the withdrawals will generally occur during retirement, the effective tax rate should be much lower. As the RRSP is a retirement account, it makes sense to hold quality dividend stocks that can help you generate sizeable returns over time. So, you need to identify a portfolio of companies that have the ability to perform well across market cycles.

Here are two great dividend stocks RRSP investors can buy right now and benefit from a steady stream of passive income and long-term capital gains.

Canadian National Railway stock

Valued at $106 billion by market cap, Canadian National Railway (TSX:CNR) is engaged in the rail and related transportation business. Its services include rail, intermodal, and trucking. It offers services across verticals that include automotive, coal, forest products, grain, metals, and petroleum, among others.

Canadian National Railway is essential to the economy as it safely transports over 300 million tons of natural resources, manufactured products, and finished goods annually throughout North America.

In the last 20 years, CNR stock has returned over 1,570% to shareholders after adjusting for dividends. Despite its market-thumping gains, CNR offers shareholders a dividend yield of 2%, given its payout of $3.38 per share. Its dividends have risen by 15% annually since June 2004, showcasing the resiliency of its cash flows.

With $52.7 billion in total assets, CNR ended 2023 with $3.9 billion in cash flows. Last year, it paid shareholders a dividend of $2 billion, indicating a payout ratio of less than 55%. CNR’s sustainable payout ratio allows it to improve its balance sheet, reinvest in acquisitions, and raise dividends.

Canadian Natural Resources stock

Another blue-chip TSX dividend stock is Canadian Natural Resources (TSX:CNQ), which offers you a forward yield of 5.4%. Further, these payouts have risen by more than 20% annually in the last 20 years.

Canadian Natural’s diversified asset base provides it with a key competitive advantage and allows it to allocate capital effectively. For instance, in 2024, it plans to focus on longer-cycle thermal development projects in the first half and shorter-cycle growth projects in the next six months. This flexibility will mean CNQ will finish 2024 with strong exit rates as conventional activity ramps up in the second half of the year.

CNQ ended the first quarter with a net income of $1.5 billion and an adjusted funds flow of $3.1 billion, enabling the company to distribute $1.7 billion to shareholders via dividends and buybacks.

Priced at 12.7 times forward earnings, CNQ stock is quite cheap and trades at a 20% discount to consensus price target estimates.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Canadian National Railway and Canadian Natural Resources. The Motley Fool has a disclosure policy.

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