2 Top Dividend Stocks for RRSP Investors

A glass jar resting on its side with Canadian banknotes and change inside.

Are you looking for dividend income in your Registered Retirement Savings Plan (RRSP)?

If so, Canadian stocks are just what the doctor ordered.

The S&P/TSX Composite Index has about twice the yield the S&P 500 has, which means that Canadian stocks produce more dividend income than U.S. stocks on average. In this article, I will explore three TSX “dividend powerhouses” that could fund your RRSP for years to come.

Canadian Pacific

Canadian Pacific Kansas City Railroad (TSX:CP) is a Canadian railroad company whose rail tracks extend all the way from Canada through the U.S. and to Mexico. The company got its Mexico route by buying out Kansas City Southern in 2022. It is now the only railroad to touch Canada, the U.S., and Mexico. Its dividend yield has grown by 7.8% per year over the last five years.

When it took over Kansas City Southern in 2022, Canadian Pacific Paid a very steep price. Specifically, it paid $31 billion, most of which was stock. As a result of the dilution, CP’s earnings per share (EPS) only grew 4.5% in the trailing 12-month period, when revenue grew 51%. The dilution was not a pretty sight; however, the company did grow enough on aggregate terms to produce a little bit of per-share growth.

TD Bank

Toronto-Dominion Bank (TSX:TD) is a Canadian bank stock with a 5.5% yield. Its dividend has increased at a rate of about 7% per year over the last five years.

TD Bank has a lot of things going for it. It has a U.S. retail business that has grown quickly historically and is the ninth-largest bank in the United States. It has a high 30% profit margin. It has enjoyed “slow but steady” 7% compounded revenue growth over the last five years. Finally, it is cheap, trading at just 9.8 times earnings.

The big risk with TD is the company’s ongoing fentanyl money-laundering scandal. In 2022, some of the bank’s tellers in New Jersey were caught laundering money for fentanyl cartels. In 2023, this caused U.S. regulators to reject TD’s attempt to buy out the U.S. bank First Horizon. This year, the investigation expanded from New Jersey to New York and Florida. Analysts expect that TD will ultimately take $2 billion in fines related to the investigation. If fines go well beyond that, then TD stock may be down for a while, but if they end there, then the stock should perform well.

First National

Last but not least, we have First National Financial (TSX:FN). It’s a Canadian mortgage lender that loans out money to households to buy houses. It might sound like a bank, but it isn’t: FN does not offer chequing/savings accounts. Instead, it finances loans by issuing bonds. This results in it having fewer liquidity concerns than a typical bank, as those financing FN cannot just haul their money out on a moment’s notice. FN did pretty good growth in 2023, delivering the following metrics:

• $2 billion in revenue, up 29%.
• $143.5 billion in mortgages under administration, up 10%.
• $4.15 in earnings per share, up 27%.

It was a pretty good showing. As long as FN stays disciplined in its operations, it should be able to keep up the good work.

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Fool contributor Andrew Button has positions in Toronto-Dominion Bank. The Motley Fool recommends Canadian Pacific Kansas City. The Motley Fool has a disclosure policy.