Canadian investors are using their self-directed Registered Retirement Savings Plan (RRSP) to build stock portfolios that can provide retirement income to complement the Canada Pension Plan, Old Age Security, and company pensions.
One popular RRSP strategy involves buying good dividend-growth stocks and using the distributions to acquire new shares.
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Dividend reinvestment 101
Investors who reinvest dividends in new shares of the stock can harness the power of compounding to build wealth. Each time the dividend is paid and new shares are acquired, the next dividend payment is larger. This, in turn, can potentially buy even more shares depending on the movement of the stock price, leading to another jump in the size of the dividend payment on the next distribution.
The effect is small at the start, but over the long run investors can use the strategy to turn a relatively modest initial investment into a meaningful sum. This is particularly true when the company increases the dividend payment at a steady pace and the share price drifts higher. Some companies even offer a discount on the price of the stock purchased using the dividends.
Investors should look for stocks that have long histories of raising their dividends annually, even through difficult economic times. In situations where share prices fall, the dividend payments can buy even more stock. This helps boost long-term returns when the stock price recovers and makes it easier for investors to stomach market corrections.
Enbridge
Enbridge (TSX:ENB) raised its dividend in each of the past 30 years. The energy infrastructure giant grows through a combination of strategic acquisitions and internal development projects. For example, Enbridge spent US$14 billion in 2024 to buy three natural gas utilities in the United States. The company is also working on a $28 billion capital program.
The new assets should boost revenue and profits to help support ongoing dividend increases.
Enbridge trades near $61 per share at the time of writing, compared to the 2025 high of around $65. Investors can take advantage of the dip to secure a 6.1% dividend yield.
Fortis
Fortis (TSX:FTS) raised its dividend in each of the past 51 years. The utility company operates $75 billion in assets, including natural gas utilities, power-generation facilities, and electric transmission networks. These businesses generate rate-regulated revenue that is normally predictable and reliable.
Fortis has not completed a large acquisition for several years, but it is working on a $26 billion capital program that is expected to increase the rate base from $39 billion in 2024 to $53 billion in 2029. As the new assets are completed and go into service, the jump in cash flow should support planned annual dividend increases of 4% to 6% over five years.
Investors can currently get a dividend yield of 3.75% from FTS stock. Fortis offers a 2% discount on shares purchased using dividends through the dividend-reinvestment plan.
The bottom line
Enbridge and Fortis are good examples of top TSX stocks that have long track records of delivering steady dividend growth. If you have some cash to put to work in a self-directed RRSP, these stocks deserve to be on your radar.
