RRSP Wealth: 2 Great Dividend Stocks to Own for Total Returns

Dividend stocks like Fortis Inc (TSX:FTS) can be great additions to a well-diversified portfolio.

| More on:
RRSP (Registered Retirement Savings Plan) on wooden blocks and Canadian one hundred dollar bills.

Source: Getty Images

Are you looking to earn high total returns in your RRSP?

If so, dividend stocks may be great assets for you to consider owning. Such stocks provide regular cash income like bonds do, but they also have considerable capital appreciation potential. Most of the time, the taxable status of dividend stocks reduces their returns compared to non-dividend stocks (the latter are not taxable at all if you don’t sell). So, dividend stocks are, along with bonds, among those assets that benefit the most from the RRSP’s favourable tax treatment.

Deciding to hold dividend stocks in your RRSP could be a wise move. However, it is only half the battle. To actually invest in dividend stocks profitably, you first need to know which ones are worth owning. In this article I will explore two quality dividend stocks that have many desirable characteristics.

Canadian Pacific

Canadian Pacific Kansas City Railway (TSX:CP) is a Canadian railroad stock. It recently gained the distinction of being the only North American railroad to link Canada, the U.S. and Mexico, when it bought the U.S.-based Kansas City Southern in 2023. The price paid for the deal was a little bit high, but now Kansas City tracks are part of CP’s tracks and the combined entity has a very wide map, spanning three countries. Also, Kansas City Southern is already producing good effects on CP’s earnings performance. In the trailing 12 month period, CP’s revenue jumped 49%, while most railroads saw their sales decline due to seasonal effects and a slowdown in crude by rail shipments.

Essentially, CP’s Kansas City Southern deal increased the amount of profit that the company earned dramatically. However, the company had to issue a lot of stock to pay for the deal, so earnings per share (“EPS”) only increased 4.5% in the trailing 12 month period. This is all part of the steep cost Canadian Pacific paid for Kansas City Southern. Still, any positive growth on a per share basis is better than what many other railroads were able to pull off in 2023.

Fortis

Fortis Inc (TSX:FTS) is a Canadian utility with operations in Canada, the U.S. and the Caribbean. It increased its dividend every year over the last 50 years. As a result, it is categorized as a “Dividend King,” a rare distinction among dividend stocks that only a handful of them can boast.

Fortis is a well-run utility that tends to chug along pretty well most of the time. It earns steady, predictable returns. It pays out a lot of dividend income. It operates regulated utilities, which are extremely resilient during recessions. Over the years, it has consistently outperformed both the TSX composite index and the TSX utilities sub-index. On the whole, it has a lot of potential.

Foolish takeaway

When it comes to total returns, holding TSX dividend stocks in RRSPs has been a winning strategy. Thanks to the RRSP’s tax-deferred nature, dividend stocks tend to benefit especially from being inside the account. Not just any randomly chosen high yield stock is necessarily a good pick. But shares in quality companies like the two named in this article tend to perform well over the long term.

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 Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends Canadian Pacific Kansas City and Fortis. The Motley Fool has a disclosure policy.

More on Dividend Stocks

stock research, analyze data
Dividend Stocks

How Much to Invest to Get $500 in Dividends Every Month

TSX dividend stocks such as Enbridge, TD Bank, and Telus, can help you earn $500 in monthly dividend payments.

Read more »

Golden crown on a red velvet background
Dividend Stocks

Dividend Powerhouses: Canadian Stocks to Fuel Your Portfolio

These two top Canadian dividend aristocrats are some of the top stocks on the TSX to buy now and hold…

Read more »

Dial moving from 4G to 5G
Dividend Stocks

This Undervalued Dividend Stock is Worth Buying Right Now

Want an undervalued dividend stock with long-term potential and a juicy yield? Here's an option you may regret not buying…

Read more »

A worker gives a business presentation.
Dividend Stocks

1 Stock I’m Buying Hand Over Fist in July Despite the Market’s Pessimism

This top dividend stock is going through a rough patch, but don't let that count out all the growth we've…

Read more »

person on phone leaning against outside wall with scenic view at airbnb rental property
Dividend Stocks

2 TSX Stocks Poised to Have a Big Summer

Restaurant Brands International (TSX:QSR) stock and another darling that could be too cheap to ignore this summer.

Read more »

HIGH VOLTAGE ELECRICITY TOWERS
Dividend Stocks

Forget Fortis Stock: Buy This Magnificent Utilities Stock Instead

Looking for high dividends and returns? Then I'm sorry, but Fortis (TSX:FTS) stock probably isn't for you.

Read more »

Increasing yield
Dividend Stocks

2 High-Yield (But Slightly Risky) Stocks to Keep Your Eye on

Have these top TSX dividend stocks finally bottomed?

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks I’d Buy if They Fall a Bit

Any near-term decline in these two top Canadian dividend stocks will make them look even more attractive.

Read more »