The stock market is volatile because of seasonality, cyclicality, and changes in different sectors in the short term. The long-term investing approach normalizes these short-term market swings and generates positive returns. However, not all stocks are meant for long-term investment. Companies with a strong foundation, a sustainable business model, and a proven track record of giving returns to shareholders are worth holding on to.
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What type of stocks are worth holding in an RRSP
First, you categorize stocks based on how they give returns and then study the means through which you will invest. Registered Retirement Savings Plan (RRSP) is a good means as it allows your investment to grow tax-free and claim tax deductions on the amount contributed.
However, you cannot easily withdraw your money from an RRSP. Firstly, premature withdrawals are subject to withholding tax. Secondly, you can withdraw the RRSP amount tax-free to buy a house or for higher education, but you have to invest the withdrawn amount back into the RRSP within 15 years or pay tax on it.
Hence, invest only the amount you will not withdraw until you retire. For RRSP, you could consider investing in long-term stocks, which you can buy and forget.
Two stocks to hold in RRSP through retirement
Fortis
Fortis (TSX:FTS) is an electric and gas utility that serves five Canadian provinces, 10 U.S. states, and three Caribbean countries. Its diversified customer base and utility model make it a buy-and-hold stock for its dividends. The company keeps expanding its asset base to cater to more customers. It has a history of paying and growing dividends for 51 consecutive years.
The company plans to grow dividends by 4-6% annually through 2029. Moreover, the stock offers a dividend-reinvestment plan (DRIP) wherein you can buy Fortis shares for a 2% discount from the average market price using the dividend money. The DRIP will help compound returns and build a sizeable passive income even from a small investment.
If you own Fortis shares, you could continue holding them through your RRSP despite the volatility in the energy sector, as its dividends are unaffected by tariffs.
BCE
BCE (TSX:BCE) is a stock to hold even though it has been in a downturn for three years and has lost almost 60% of its value. The company’s secular growth of subscriptions and 5G infrastructure is intact. The downturn is cyclical as it underwent the initial capital expenditure of building the dense fibre infrastructure.
BCE has passed that phase and is restructuring its business to monetize the 5G infrastructure by offering various digital and cloud solutions and secure connectivity. The results of this restructuring could be visible in the next two years.
BCE stock is down because of its high leverage and 2025 guidance of revenue decline and net loss. This guidance excludes the impact of the pending acquisition of Ziply Fiber. You could consider this dip a step back before the big jump. The company is selling the Source store and has excluded its revenue. More asset disposals are pending, and the proceeds will be used to reduce debt.
The restructured company will focus on high-margin businesses. Investors will have a better picture of BCE’s revenue and earnings growth prospects once the acquisitions and sales are over.
The dividend pause of 2025 could continue for another year until the profits from restructuring are realized. The company could resume dividend growth by passing on the benefit of higher profits to shareholders. If you own BCE stock in RRSP, keep holding it through DRIP and accumulate more shares.
