Canadian savers are searching for quality dividend stocks to add to their self-directed Registered Retirement Savings Plan (RRSP) portfolio. In the current environment, it makes sense to look for companies that have long track records of raising their distributions throughout the economic cycle.
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Fortis
Fortis (TSX: FTS) is a Canadian utility with $73 billion in total assets spread out across five provinces in Canada, 10 American states, and three countries in the Caribbean. The company has nearly 10,000 employees working for businesses that include power generation facilities, natural gas distribution utilities, and electricity transmission networks.
Fortis is up 26% in the past year and trades near its record high. The stock is benefitting from cuts to interest rates in Canada and the United States. Reduced borrowing expenses on variable-rate loans free up more cash for distributions to shareholders or for reducing debt. Cheaper borrowing costs in the bond market can help make potential projects feasible.
Fortis is working on a $26 billion capital program that will increase the rate base from $39 billion in 2024 to $53 billion in 2029. The resulting boost to cash flow should support planned annual dividend increases of 4% to 6% over the five years. Fortis raised the dividend in each of the past 51 years, so investors should feel comfortable with the outlook.
Fortis has a good track record of making strategic acquisitions to boost growth. The company hasn’t done a large deal for several years, but lower borrowing costs could spark a wave of consolidation in the utility sector.
Investors who buy Fortis stock at the current level can get a dividend yield of 3.65%. A $10,000 investment in Fortis 20 years ago would be worth about $77,000 today with the dividends reinvested.
Royal Bank
Royal Bank (TSX: RY) trades near $163 per share at the time of writing compared to $180 late last year. The dip gives investors who missed the 2024 rally a chance to buy the banking giant at a reasonable price, and you can now pick up a dividend yield of 3.6%.
Royal Bank is a profit machine. The bank generated adjusted net income of $17.4 billion in 2024, up 10% compared to 2023. Adjusted diluted earnings per share (EPS) rose 8%, and adjusted return on equity remained at a lofty 15.5%. Royal Bank finished 2024 with a common equity tier-one (CET1) ratio of 13.2%. This is well above the level required by regulators and means Royal Bank has ample excess cash to make strategic acquisitions or ride out a recession.
Royal Bank completed its $13.5 billion takeover of HSBC Canada in 2024. The deal added more than 100 branches and 780,000 new customers. It also gave Royal Bank an edge when offering commercial banking clients and affluent wealth management customers access to international banking services.
Near-term volatility is possible for bank stocks if trade wars trigger a global recession. That being said, investors should use any material pullback in RY stock as an opportunity to add to the position. A $10,000 investment in Royal Bank 20 years ago would be worth about $95,000 today with the dividends reinvested.
The bottom line on RRSP dividend stocks
Fortis and Royal Bank are good examples of quality Canadian dividend stocks that deserve to be on your radar for a self-directed RRSP. They don’t offer the highest yields in the TSX, but the long-term total returns are tough to ignore.
