When you invest with a Registered Retirement Savings Plan (RRSP), you don’t pay any tax on the gains and income earned in the account. You do pay tax on the cash that you withdraw from the account.
Compound income tax-free inside your RRSP
However, if you don’t plan on withdrawing cash for a long time, the RRSP is a great place to invest. You can use the tax deferral to invest in dividend stocks, earn income, and re-invest the proceeds into more dividend stocks.
Over time, you can start to substantially compound your capital. That way, when you hope to retire, you can potentially have enough dividend income to help sustain your lifestyle.
If you are looking for some quality dividend stocks to add to your RRSP, here are two to consider today.
CNQ: A top dividend-growth stock for an RRSP
If you want income growth inside an RRSP, Canadian Natural Resources (TSX:CNQ) is about as good as it gets. The company has grown its dividend by a compounded annual rate of 21% for 24 years. It has increased its dividend by 5% in 2024.
Given the fact that CNQ has now hit its long-term net debt target, it is delivering 100% of its excess cash flow to shareholders. Share buybacks, dividend growth, and special dividends are on the way. That is especially true if oil prices start to rise beyond the current US$76 per barrel.
As Canada’s largest energy (oil and gas) producer, Canadian Natural is not exempt from energy price volatility. Fortunately, it has built out a very resilient business.
It has decades of energy reserves that remain untapped. Likewise, it has factory-like operations that protect a low cost of production. This provides a very foreseeable picture to strong cash flow generation and dividend payments.
With a highly invested (and shareholder-aligned) management team, as well as a top operational platform, CNQ stands to be a great performer in an RRSP. Today, CNQ yields a 4.3% dividend.
GSY: Dividend income and capital gains
Another dividend stock for an RRSP is goeasy (TSX:GSY). With a 2.5% dividend yield, it does not pay the highest yield in the market. However, it is hard to find a stock with a better dividend-growth profile.
Over the past 10 years, its dividend has risen by a 27% compounded annual growth rate. For context, its annual dividend per share today ($4.68) is 12.7 times larger than it was in 2014!
The amazing part about goeasy is that its payout ratio has hardly changed in that period. That is because its earnings per share growth rate has largely increased at the same rate as its dividend.
This is the exact scenario that you want with a dividend-growth stock. Not only do you get income but you also enjoy capital upside. goeasy stock is up 645% since 2014! The even more amazing part is that goeasy’s price-to-earnings ratio is cheaper today than it was in 2014.
That is even though the business has scaled and grown significantly. goeasy’s non-prime lending platform continues to grow. In its recent quarter, loans grew by 37%, revenues increased by 25%, and earnings per share was up 25%.
The recent stock pullback is a great opportunity to add this long-term compounder/income stock into your RRSP!
