Canadian investors are looking for good stocks to add to a self-directed Registered Retirement Savings Plan (RRSP) portfolio focused on generating dividend income and long-term total returns.
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RRSP benefits
The CRA allows Canadians to contribute 18% of the previous year’s earned income to RRSP accounts, up to a maximum level. The contribution can then be used to reduce the taxable income of the contribution year or carried forward to another year. RRSP contribution space is determined by a person’s reported earned income, which generally means the money made from employment that is used to determine annual income taxes. Investments grow tax-free while held inside the RRSP. The money is taxed as income when the funds are removed in retirement.
For example, a person who earns $100,000 in 2026 would be able to contribute $18,000 to their RRSP next year. This amount could then be used to reduce their taxable income for 2027 by $18,000. The higher a person’s income, the bigger the tax break, as tax rates increase with income levels. Ideally, investors want to make contributions when they are in a high marginal tax bracket, with the goal of pulling the funds back out in retirement at a lower marginal tax rate.
Contributions to company pension plans, however, count toward the RRSP limit. This is important for people to keep in mind when putting money into a self-directed RRSP. To be safe, it is always advisable to check the RRSP contribution limit indicated on the annual Notice of Assessment (NOA) the CRA sends after annual taxes are filed.
Dividend reinvestment
RRSP investments tend to be buy-and-hold positions, as many people use their RRSP to build a retirement fund. A popular RRSP strategy involves buying good dividend-growth stocks and using the distributions to acquire new shares. Some companies even provide a discount on the share price through the dividend-reinvestment plan (DRIP).
Fortis (TSX: FTS) has been a top pick for RRSP investors for decades. The board increased the dividend in each of the past 52 years.
This is a big reason the stock price has gradually trended higher. Fortis is working on a $28.8 billion capital program that will increase the rate base considerably in the coming years. As a result, management expects to deliver a boost to cash flow that will enable annual dividend growth of 4% to 6% through 2030.
A $10,000 investment in Fortis stock 30 years ago would be worth about $350,000 today with the dividends reinvested.
Enbridge
Enbridge (TSX: ENB) has increased its dividend annually for more than three decades. The energy infrastructure giant continues to expand its assets through a combination of acquisitions and internal projects. A big push in the United States in recent years diversified the portfolio, giving investors good exposure to the American energy sector through a large Canadian company.
Enbridge has a $40 billion secured capital program on the go that will boost distributable cash flow over the coming years to support ongoing dividend growth. At the time of writing, ENB stock provides a dividend yield of 5%.
A $10,000 investment in Enbridge stock 30 years ago would be worth about $650,000 today with the dividends reinvested.
The bottom line
There is no guarantee that Fortis and Enbridge will deliver the same returns over the next 30 years, but these companies pay reliable dividends and still deserve to be part of a diversified buy-and-hold RRSP portfolio focused on total returns.
