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Essential RRSP Stocks: 2 Canadian Picks to Secure Your Retirement

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Source: Getty Images

Written by Christopher Liew, CFA at The Motley Fool Canada

Canadians find the Registered Retirement Savings Plan (RRSP) a valuable savings tool to secure their retirement, although less than 25% can max out the contribution limits. The data is based on the survey results by Edward Jones Canada regarding the preference for and utilization of the RRSP.

However, 49% of respondents still want to contribute despite elevated inflation and the high interest rate environment. Moreover, 58% and 62% of Canadians in the age brackets between 18 and 34 and 35 to 54, respectively, plan to make RRSP contributions.

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Julie Petrera, a senior strategist at Edward Jones, said, “It’s clear that amid the current economic climate, Canadians prefer to stick to what they know by contributing to their RRSP this year.”

If RRSP is also your preferred investment vehicle in 2024, make Fortis (TSX:FTS) and TELUS (TSX:T) your anchor stocks. The former is a newly crowned Dividend King, while the latter has raised dividends for 19 consecutive years. You make the most of your RRSP contributions regarding tax savings and tax-free money growth.

Low-risk profile

Fortis will not disappoint in good or bad times and in an up or down market. The 50-year dividend-growth streak is a testament to its reliability as a passive income provider. The $26.5 billion gas and electricity utility company serves 3.5 million customers in Canada, the U.S., and the Caribbean. Around 99% of the utility assets are regulated.

The board approved a new $25 billion capital plan (2024-2028), of which 20% are major capital projects. About $7 billion is for investments in cleaner energy. Of the total, 55% will come from cash from operations. According to management, the plan is highly executable and should deliver a 6% low-risk rate base growth.

More importantly, the dividend growth guidance through 2028 is 4-6% annually. If you invest today, FTS trades at $53.69 per share (+0.67%) year to date and pays a 4.40% dividend. “For 2024 and beyond, we are focused on executing our regulated growth strategy and continuing our operational and financial success,” said David Gerard Hutchens, president, chief executive officer (CEO), & director of Fortis.

Dividend program

Communications services is the worst-performing sector thus far in 2024 (-11.39%), although this doesn’t diminish the viability of TELUS as an anchor in your RRSP. As mentioned, Canada’s second-largest telco is a Divided Aristocrat. At $21.72 per share (-4.72% year to date), the dividend offer is a lucrative 7.17%.

TELUS’s ongoing dividend program targets semi-annual dividend increases of 7-10% from 2023 through 2025. However, the decision rests with the board, which will assess and determine the financial situation and outlook every quarter.

An investment of $31,560 (2024 maximum RRSP limit) will generate $2,262.35 annually or $565.71 in quarterly passive income. If you don’t pocket the dividends but reinvest them (four times a year), your money will grow to $91,639.70 in 15 years. Remember that your RRSP is a tax-advantaged account in that your contributions are tax-exempt, and only withdrawals are taxed by the Canada Revenue Agency.

Salient feature

Unused RRSP contribution rooms carry over to the following year, so keep going. As long as you have Fortis and TELUS as anchors, you reduce the tax payable, and your money compounds tax-free for years or until retirement.

The post Essential RRSP Stocks: 2 Canadian Picks to Secure Your Retirement appeared first on The Motley Fool Canada.

What Stocks Should You Add to Your Retirement Portfolio?

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Consider when "the eBay of Latin America," MercadoLibre, made this list on January 8, 2014 ... if you invested $1,000 at the time of our recommendation, you’d have $18,111.92.*

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See the 10 stocks * Returns as of 5/22/24

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Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Fortis and TELUS. The Motley Fool has a disclosure policy.

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