In 2024, Canadians can contribute up to 18% of their earned income from the previous year to their Registered Retirement Savings Plan (RRSP), with an annual maximum of $31,560. This figure is indexed to inflation, which means it increases slightly each year to keep pace with the cost of living. The RRSP is one of Canada’s most effective tools for retirement planning, allowing individuals to save for the future while enjoying tax benefits today. The flexibility of contributions, paired with the ability to defer taxes on investment growth, makes it an attractive option for Canadians looking to secure their financial future. So, how should you get started?
Savings and gains
The primary benefit of contributing to an RRSP is the immediate tax deduction. For instance, if you earned $100,000 in 2023 and contributed $20,000 to your RRSP, your taxable income would be reduced to $80,000. This could result in significant tax savings, depending on your tax bracket. Furthermore, investments held within an RRSP grow tax-free, meaning you don’t pay taxes on dividends, interest, or capital gains while the money remains in the account. Taxes are only applied when you withdraw funds, typically during retirement, when your income (and tax rate) is often lower.
If you’re looking for a strong investment option to include in your RRSP, consider The North West Company (TSX:NWC). NWC is a prominent Canadian retail and grocery chain with operations in some of the most remote and underserved regions of Canada, Alaska, Hawaii, and even parts of the Caribbean and Oceania. This unique geographic footprint allows the company to enjoy relatively low competition and stable demand, making it an excellent choice for long-term, resilient growth.
Financially, NWC has shown consistent performance. As of October 2024, the company boasts a market capitalization of $2.5 billion. The company’s beta of 0.65 indicates lower volatility compared to the broader market – thus making it an appealing option for conservative investors seeking stability within their RRSP portfolios.
The numbers
NWC’s recent earnings report also underscores its strength. The company recently reported 4.6% year-over-year growth in revenue, reaching $616.9 million. Higher same-store sales drove this increase in its Canadian operations, as well as the positive impact of new store openings. Net income experienced a slight year-over-year decline of 4%. Yet the company’s operating cash flow of $258.3 million highlights its robust ability to generate cash and fund future growth initiatives.
Another compelling aspect of NWC is its commitment to returning value to shareholders through dividends. With a forward annual dividend rate of $1.60 per share and a yield of 3%, NWC offers investors a steady income stream. Its payout ratio of 56.9% suggests that the company retains enough earnings to reinvest in its business while rewarding shareholders. Notably, NWC has a history of sustaining and growing its dividend, making it a reliable choice for income-focused investors.
Looking ahead, NWC is well-positioned for continued success. The company has been actively pursuing strategic initiatives to improve operational efficiency and expand its market reach. Its focus on meeting the unique needs of underserved communities gives it a competitive edge, particularly as these markets tend to be less affected by economic downturns. Plus, NWC’s ability to adapt to changing consumer trends, such as increasing demand for online grocery services, further supports its positive outlook.
Bottom line
Including a company like NWC in your RRSP offers a blend of stability and growth potential. The stock’s beta ensures it doesn’t experience wild market swings. Yet its strong financial fundamentals and reliable dividend payments make it a cornerstone investment, especially for those building a retirement portfolio. When combined with the tax-deferred growth of an RRSP, NWC becomes an even more attractive option for long-term investors.
