Canadian dividend stocks are among the best assets to hold in your Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA). Boasting high-income potential and fairly dependable total returns, they are among the best assets in the country.
Not only are Canadian dividend stocks good assets in themselves, but they are not exposed to withholding taxes like foreign dividends are. Technically, holding any U.S. dividend stock in an RRSP spares you that country’s withholding tax, but there are other countries that have no tax treaties with Canada. So, Canadian dividend stocks have preferential tax treatment compared to global dividend stocks, even if we’re considering RRSP investments only.
The question, therefore, is which dividend stocks you’re going to hold in your RRSP. Although Canadian dividend stocks have performed well as a class, there have definitely been some losers among them. If you want to maximize the returns you earn on your RRSP investments, you need to pick your investments well. In this article, I will explore two high-quality Canadian dividend stocks that might be worth holding in your RRSP.
Brookfield Asset Management
Brookfield Asset Management (TSX:BAM) is a Canadian dividend stock that has a 3.6% dividend yield. BAM has a 72% payout ratio, which is not low, but not extremely high either. This suggests that the company’s dividend payouts are fairly safe.
Brookfield Asset Management has many, many things going for it. For one thing, it’s a world leader in asset management. It did several multi-billion-dollar fundraises in the last year, it signed a massive clean energy deal with Qatar, and one of its subsidiaries recently announced a 10.5 gigawatt power deal with Microsoft. Neither of these news items means much on its own, but together, the three of them illustrate that Brookfield is a real mover and shaker in the global asset management industry.
Brookfield Asset Management is part of Brookfield Corporation (TSX:BN), a major financial conglomerate headed by Bruce Flatt. Flatt is an extremely charismatic and successful chief executive officer (CEO) who has presided over 16% compounded annual (CAGR) growth during his 20-year tenure.
Flatt’s results speak for themselves. 16% CAGR growth is better than the S&P 500 over 20 years. Also, Flatt’s solid reputation and continual media appearances provide reason for thinking that Brookfield and Brookfield Asset Management will keep thriving in the years ahead.
Although the statement that the “CEO is charismatic and does a lot of media appearances” does not in itself prove that the CEO’s company will thrive, it does lend credence to the idea that the company will not struggle with raising money. For an asset manager like Brookfield, that’s an important advantage.
Brookfield Asset Management manages funds across real estate, infrastructure and renewables. Now, with the Microsoft deal and the data centre business, the company is leading the charge in artificial intelligence infrastructure. It’s an exciting time to be a BAM shareholder.
CN Railway
Canadian National Railway (TSX:CNR) is a Canadian dividend stock with a 2% yield, a 33% payout ratio and a 10.83% five-year compounded dividend-growth rate. This is quite a combination of good characteristics, implying that CN Railway is a fairly safe dividend stock with a lot of dividend-growth potential.
Past results don’t always predict future results, but there are several reasons to think that CNR’s success will continue into the future. For one thing, it’s a high-moat stock with only one competitor in Canada and only a few competitors in the United States. For another thing, it’s ultra profitable, with a 38% net profit margin. Finally, rail, in general, is economically indispensable, as it’s the most cost-effective way to ship goods by land. It’s no high-flying technology stock, but CNR has enough things going for it to continue thriving in the years ahead.
