Canadian savers are using their self-directed Registered Retirement Savings Plan (RRSP) to build portfolios that can complement the Canada Pension Plan, Old Age Security, and company pensions in retirement.
One popular RRSP investing strategy involves buying top TSX dividend stocks and using the distributions to acquire new shares. This harnesses a compounding process that can turn modest initial investments into meaningful savings over the long run.
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Canadian National Railway
Canadian National Railway (TSX:CNR) went public in the mid-1990s. Since then, the stock has been one of the best dividend-growth names on the TSX. The railway giant operates nearly 20,000 route miles of tracks that cross Canada from the Pacific to the Atlantic and run through the United States to the Gulf of Mexico.
CN generates a good chunk of its revenue in the U.S., so it is a good way for investors to get exposure to the American economy through a Canadian stock. CN moves raw materials and finished goods, which are key to the smooth operation of the economy in Canada and the United States. Railways tend to have wide competitive moats. The odds of new competing tracks being built along the same routes are pretty much nil.
CN’s share price is down about 6.5% in 2024 compared to a gain of more than 20% for the TSX. Labour issues at both the railway and Canadian ports have combined with disruptions by wildfires to make the past 12 months challenging for the rail operator. Potential new tariffs on goods entering the U.S. from Canada next year have also made investors cautious in recent weeks.
These are likely short-term problems, however, and investors should consider taking advantage of the pullback in the stock. Buying CN on meaningful dips has historically proven to be a savvy move for patient investors.
Fortis
Fortis (TSX:FTS) is another dividend-growth superstar on the TSX. The board has increased the dividend in each of the past 51 years. Looking ahead, Fortis intends to raise the distribution by 4-6% per year over through 2029. That’s good guidance in an uncertain economic outlook heading into 2025.
Fortis operates roughly $69 billion in utility assets that include natural gas distribution, power generation, and electricity transmission businesses. Nearly all the revenue comes from rate-regulated assets, so cash flow tends to be predictable and reliable.
Fortis grows through a combination of strategic acquisitions and development projects. The company hasn’t made a large purchase for several years, but that could change as interest rates decline in Canada and the United States. In the meantime, Fortis is working on a $26 billion capital program. As the new assets are completed and go into service, the boost to revenue and cash flow should support the planned dividend increases.
Fortis gives investors a 2% discount on new stock purchased through the dividend-reinvestment plan.
The bottom line on top TSX dividend stocks
CN and Fortis are good examples of dividend-growth stocks that have generated attractive total returns for long-term investors. If you have some cash to put to work in a self-directed RRSP, these stocks deserve to be on your radar.
