Pensions such as the Canada Pension Plan (CPP) and Old Age Security (OAS) are lifetime financial supports but are partial replacements to the pre-retirement income. However, the Canadian government introduced retirement accounts to motivate people to prepare, save, and live comfortably in their golden years.
The Registered Retirement Savings Plan (RRSP) is a valuable investment vehicle to secure your financial future. You can develop a regular savings habit once you start contributing. Also, it’s not true that you need a sizable sum to invest in income-producing assets to hold in an RRSP.
Most RRSP users elect to invest in dividend stocks because of the higher potential to earn money. Also, risk-averse investors saving for retirement will choose only Bank of Montreal (TSX: BMO) and Canadian Utilities (TSX: CU) as anchors in their RRSPs.
The big bank stock is Canada’s dividend pioneer, while the utility stock is TSX’s first Dividend King. Their dividend yields are not the highest in the market, but they should be sustainable and safe for decades.
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Dividend pioneer
BMO is Canada’s oldest financial institution (established in 1817) and the third-largest bank today. This $86.12 billion lender started paying dividends in 1829. The 194-year dividend track record is longer than the current life expectancy of 83.11 years in Canada. At $118.60 per share, the dividend yield is 5.25%.
On February 1, 2023, BMO completed the acquisition of Bank of the West in the U.S., and by year-end, it completed the integration into its operating systems. As of this writing, BMO has a footprint in 32 states and boasts a strong position in three of the top five U.S. markets.
Last month, Fitch Ratings affirmed its stable rating outlook for BMO. The key rating drivers include the strong Canadian franchise and sizeable U.S. operations. The ratings agency believes the big bank’s profile is highly weighted by its market position and business model.
In the first half of fiscal 2024 (six months ended April 30, 2024), BMO’s reported net income climbed 171.77% year over year to $3.16 billion. “We continue to position the bank for long-term growth,” said Darryl White, chief executive officer of BMO Financial Group.
Dividend King
A Dividend King like Canadian Utilities is a no-brainer buy for long-term investors. This $6.26 billion utility and energy infrastructure company grows its dividends in tandem with earnings growth. The utility stock earned its royalty two years ago; the dividend-growth streak is 52 years and counting. At $30.21 per share, you can partake in the 5.93% dividend.
The highly contracted and regulated earnings base forms the foundation for continued dividend growth. From 2024 to 2026, Canadian Utilities will invest $4.6 billion to $5 billion in regulated utilities. The capital investment should increase earnings and cash flows immensely in the ensuing quarters and create long-term shareholder value.
Limit and contribution deadline
For 2024, the annual RRSP limit is $31.560 or 18% of your earned income in 2023, whichever is lower. March 1, 2025, is the deadline for the tax year 2024. You can claim tax deductions on RRSP contributions made on or before the prescribed deadline.
