Canadians use their self-directed Registered Retirement Savings Plan (RRSP) to build investment portfolios that can provide retirement income which complements CPP, OAS, and work pensions.
One popular RRSP investing strategy involves owning top dividend-growth stocks and using the distributions to buy new shares. This sets off a powerful compounding process that can turn modest initial investments into meaningful savings over time.
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RRSP basics
Your RRSP contribution in a given year is equal to 18% of earned income in the previous tax year. For example, a person with 2025 income of $100,000 would have $18,000 in RRSP contribution space in 2026. There is a cap for high earners, however. That amount for 2025 is $32,490.
RRSP contributions reduce taxable income for the relevant year. This provides the most benefit to people who are in the highest marginal tax rates. Investments held inside the RRSP can grow tax-free, but taxes are paid on the money when it is withdrawn in retirement. Where possible, the goal is to be in a lower marginal tax bracket when you take out the money than when the initial contributions were made.
One thing to keep in mind is that contributions made by employees and employers to a company pension count against the RRSP limit each year, so people need to keep an eye on their notice of assessment from the CRA each year after filing their taxes to see how much RRSP contribution space they actually have available. Generous company pension plans can eat up a good chunk of the RRSP room. Contributing too much to the RRSP can result in penalties of 1% per month on the excess amount. The CRA gives people a $2,000 lifetime RRSP over-contribution cushion.
Dividend stocks for RRSP investors
Stocks with good track records of dividend growth usually rebound from market corrections. This is important to consider when buying stocks for a self-directed RRSP where investments are typically held for the long haul.
Fortis
Fortis (TSX:FTS) is a good example of a top TSX dividend-growth stock. The board has increased the dividend annually for the past 51 years.
Fortis owns businesses that include natural gas distribution utilities, power generation facilities, and electricity transmission networks. The company is working on a $26 billion capital program that will increase the rate base from $39 billion in 2024 to $53 billion in 2029. As the new assets are completed and start generating revenue the boost to profits should support targeted annual dividend growth of 4% to 6% over five years.
Canadian Natural Resources
Canadian Natural Resources (TSX:CNQ) raised its dividend in each of the past 25 years. This is impressive for a business that relies on commodity prices to determine its profit margins.
CNRL is a giant in the Canadian energy sector with oil, natural gas liquids, and natural gas production and extensive reserves. The stock is down over the past year due to a decline in oil prices. This gives investors a chance to buy CNQ on a pullback. The company continues to grow through acquisitions and drilling projects. Investors who buy CNQ stock at the current price can get a dividend yield of 5.4%.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) is a contrarian pick among the large Canadian banks. The stock has underperformed its big peers over the past several years, but a turnaround effort is underway.
Bank of Nova Scotia is focusing new growth investments on the United States and Canada, and has started to exit some of its businesses in Latin America where it invested billions of dollars on acquisitions over the past 20 to 30 years. It will take some time for the new strategy to deliver results, but investors who buy BNS stock at the current level can get paid a solid 5.7% dividend yield while they wait.
The bottom line
Fortis, CNRL, and Bank of Nova Scotia pay attractive dividends that should continue to grow. If you haves some RRSP cash to put to work, these stocks deserve to be on your radar.
