Investors are looking for good stocks to add to their self-directed Registered Retirement Savings Plan (RRSP) portfolio focused on dividends and total returns.
One popular RRSP strategy involves owning good dividend-growth stocks and using the distributions to buy additional shares.
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Power of compounding
Investors can take advantage of a company’s dividend-reinvestment plan (DRIP) to automatically use dividends to acquire new shares. Each dividend payment that buys more shares leads to a higher dividend payment on the next distribution. This sets off a powerful compounding process that can turn a modest initial investment into a considerable retirement fund over the course of 20 or 30 years, especially when dividends increase at a steady pace and the share prices drifts higher.
Fortis
Fortis (TSX: FTS) is a good example of a top Canadian dividend-growth stock. The board has increased the dividend for 52 consecutive years. This is one reason why the share prices has trended higher over time, regularly recovering from pullbacks.
Fortis is working on a $28.8 billion capital plan that will raise the rate base from roughly $42 billion in 2025 to $58 billion by 2030. As the new assets are completed and go into service, the boost to cash flow is expected to support planned annual dividend increases of 4% to 6% over five years. That’s good guidance for dividend investors.
Fortis has other projects under consideration that could get added to the development plan. The company could also be a candidate to participate in Canada’s goal to build a national power grid. Fortis operates power generation facilities, electricity transmission networks, and natural gas distribution utilities.
Investors who buy Fortis at the current share price can get a dividend yield of 3.5%. The company offers a 2% discount on shares purchased using the DRIP.
A $10,000 investment in Fortis 20 years ago would be worth about $68,000 today with the dividends reinvested.
Enbridge
Enbridge (TSX: ENB) is a leading player in the North American energy infrastructure industry. The company’s vast pipeline networks move close to 20% of the natural gas used in the United States and approximately 30% of the oil produced in the U.S. and Canada. Enbridge also has export facilities, is the largest operator of natural gas utilities in North America, and has a growing renewable energy business.
The company continues to expand through a combination of acquisitions and development projects. The current $35 billion capital program should drive steady growth in distributable cash flow over the medium term to support ongoing dividend hikes. Enbridge increased its dividend in each of the past 31 years. Investors who buy ENB at the current share price can get a dividend yield of 5.7%.
New interest in building large oil and natural gas pipelines in Canada could bode well for Enbridge in the next few years as the government looks for ways to diversify sales of Canadian energy.
A $10,000 investment in Enbridge 20 years ago would be worth about $96,000 today with the dividends reinvested.
The bottom line
Fortis and Enbridge pay good dividends that should continue to grow. If you have some cash to put to work in a retirement portfolio, these stocks deserve to be on your radar.
