The average Registered Retirement Savings Plan (RRSP) for Canadians aged 65 might surprise some people. It’s estimated to be around $180,000. While this seems like a substantial amount, when stretched over a retirement that could span two decades or more, it doesn’t quite provide the security one might hope for.
Most financial experts recommend having at least $500,000 to $1 million saved to ensure a comfortable retirement, especially with inflation and the rising cost of living. This shortfall in savings is a concern for many Canadians approaching retirement.
Why not?
Why isn’t it enough? Simply put, $180,000 translates to only about $9,000 per year if withdrawn over a 20-year period, and that’s before taxes. Coupled with the Canada Pension Plan (CPP) and Old Age Security (OAS) benefits, this might cover basic needs.
Yet, it’s unlikely to support a lifestyle that includes travel, leisure, or any unexpected medical expenses. So, for those looking to catch up and add to their nest egg, investing in a reliable growth stock like Constellation Software (TSX:CSU) could be a promising choice.
CSU stock
CSU has had an impressive track record, which continues to make it a compelling choice. In recent third-quarter (Q3) 2024 earnings, CSU stock reported a 20% revenue increase to $2.54 billion, primarily driven by acquisitions and some organic growth. The company’s growth model has long focused on acquiring smaller software companies and integrating them efficiently. This consistently drives up revenue. For those seeking growth in their investments, CSU’s strategy of expansion and acquisition offers just that.
The earnings for Q3 also showed some fluctuations in net income, with a decrease of 28% to $164 million, primarily due to the costs associated with their aggressive acquisition strategy. While some might view this as a downside, CSU has demonstrated over time that these investments often lead to higher revenue and operational efficiency in the long run, thereby benefiting shareholders through steady growth.
CSU stock also announced a $1.00 per share dividend payable in January 2025. While the yield is modest compared to some dividend stocks, it’s a nice bonus for investors who are more interested in the capital appreciation CSU has delivered over the years. The stock has been a powerhouse on the TSX, with a market cap of nearly $97 billion. And it consistently outperforms with a focus on long-term value rather than short-term gains.
Looking ahead
In terms of future outlook, CSU stock shows no signs of slowing down. Its Q3 results highlighted continued growth with additional acquisitions, totalling $267 million in cash payments. This is an exciting prospect for potential investors because CSU’s management team has a history of selecting valuable acquisitions that continue to increase revenue streams and shareholder value.
Notably, CSU’s stock trades at a high valuation with a trailing price-to-earnings (P/E) of 106.91. This high valuation reflects investor confidence in CSU’s ability to generate revenue and profit growth over time. For those closer to retirement, the long-term value of CSU stock can be especially appealing since it provides a robust growth path compared to more conservative or fixed-income investments.
Furthermore, CSU stock’s strong cash flows make it a sustainable option. Cash flow from operations was $517 million in Q3, reflecting the company’s operational strength and its ability to fund future acquisitions without overly relying on debt. This cash flow stability is crucial for investors who want security in knowing that the company has the funds to continue expanding without compromising its balance sheet.
Bottom line
If you’re looking to bump up your RRSP, CSU is a great option. CSU is considered a “tech growth” stock, so it naturally has the potential to deliver returns that far outpace traditional fixed-income or low-growth investments. With a steady history of growth and a strong business model, CSU presents a valuable option for Canadians aiming to bolster their RRSPs, especially if they’re starting late and need to catch up with their savings.
