Registered Retirement Savings Plans (RRSPs) are a great place to grow your long-term savings into retirement wealth. Firstly, contributions made into the account are tax deductible. If you have a particularly good year, contributing to the RRSP is a great way to lower your overall tax bill at year end.
Secondly, any investment returns (capital gains, dividends, and interest) earned in an RRSP are tax-free. You can let your money compound inside the account over years and decades without any tax implications.
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Use the RRSP to save for retirement in a tax-advantaged way
The one catch is that when you withdraw any funds from the account, it is treated like income in that taxable year. The point of the account is to build up a retirement fund that you can draw on once you retire. Generally, in retirement, your income is expected to be lower, so your tax rate on those withdrawals will also be lower.
Many people who have retired or are nearing retirement prefer safe, income-producing stocks. If you are looking for a couple of dividend stocks that would be a great fit for an RRSP, consider Pembina Pipeline (TSX: PPL) and Granite Real Estate Investment Trust (TSX: GRT.UN).
Pembina Pipeline: A safe-and-steady stock for long-term income
With a market cap of $34 billion, Pembina Pipeline sits amongst the largest energy infrastructure businesses in Canada. It operates a portfolio of essential assets that include collection and egress pipelines, midstream and gas processing facilities, fractionation facilities, propane export terminals, and storage terminals.
The company has executed an exceptional recovery out of the pandemic oil crash in 2020. Its stock is up 131% since it crashed in April 2020. Part of that is because oil prices quickly stabilized and recovered. The other part is that the company has been executing very well on its growth initiatives.
The fact that Pembina maintained its dividend through the pandemic crash (when oil prices went negative) is a testament to the quality of its business. Today, around 85% of its income comes from contracted sources. This contracted income supports its dividend by a wide margin.
Over the past several years, the company has generated a lot of excess cash. As a result, it has been regularly increasing its dividend and investing in growth projects.
Today, Pembina stock yields 4.7%. With major projects like Cedar LNG providing long-term growth, Pembina is positioned to provide steady income returns for an RRSP in the years ahead.
Granite REIT: A solid REIT for an RRSP
Granite REIT operates a portfolio of industrial, manufacturing, and logistic properties across Canada, the United States, and Europe. This REIT has long-term leases (average lease term is over six years), high-grade tenants, 94.5% occupancy, and high-quality, well-located properties.
Granite is managed by a fiscally prudent management team. As a result, it has one of the best balance sheets amongst Canadian REIT peers. This has afforded this REIT the ability to increase its dividend for 13 consecutive years.
GRT.UN’s dividend payout ratio remains conservative, so its dividend growth trajectory is likely to continue. It yields a 4.3% distribution right now. Granite is a great faithful pick to hold for the long term in an RRSP.
