RRSP Investors: 2 Top Canadian Stocks to Own for 2 Decades

Long-term Royal Bank of Canada (TSX:RY)(NYSE:RY) investors have built up some serious wealth. Another Canadian industry leader has delivered even better results.

| More on:

Canadians are using their self-directed RRSP accounts to create portfolios of top-quality stocks.

The RRSP has been around for a long time and offers investors some attractive benefits. Contributions can be used to reduce taxable income today, and the interest, dividends, or capital gains generated on the money can be reinvested tax-free.

When the time comes to pull the funds, investors pay tax on the amount according to their marginal tax rate at that moment. Ideally, this will be lower than the rate they were at when they made the original contributions.

Removing RRSP funds before retirement is possible, but a withholding tax is applied, so it is best to keep the money in the RRSP for the long haul.

Let’s take a look at two top Canadian stocks that should be attractive picks to buy today and hold for 20 years.

Royal Bank

Royal Bank of Canada (TSX:RY)(NYSE:RY) has a market capitalization of $150 billion, making it the largest company on the TSX Index.

The bank has weathered every major economic crisis over the past 150 years and is positioned well to continue the strong track record. It has a balanced revenue stream coming from personal and commercial banking, wealth management, capital markets, investor and treasury services, and insurance operations.

Royal Bank knows it has to adjust to changing trends in the industry and is investing heavily to build its digital banking platforms. Clients are using the mobile applications at an increasing rate, and this should help Royal Bank remain competitive, as non-bank entrants move into the sector.

The bank is very profitable, reporting fiscal 2018 earnings of $12.4 billion. The 2019 results are on track to beat that amount, despite a challenging environment for the industry.

Royal Bank has a long history of dividend growth, and that is expected to continue in line with anticipated earnings-per-share gains of 7-10% per year over the medium term. The current payout provides a yield of 4%.

A $10,000 investment in Royal Bank 20 years ago would be worth more than $130,000 today with the dividends reinvested.

CN

Canadian National Railway (TSX:CNR)(NYSE:CNI) is investing $3.9 billion in 2019 on new locomotives, additional rail cars, network upgrades, and new technology to drive more efficiency into its operations.

The company is a giant in the North American rail industry with routes that connect to ports on both the Atlantic and Pacific coasts of Canada, as well as the Gulf of Mexico in the United States.

As the Canadian and American economies grow, CN gets more business for its broad range of transport segments. The company carries everything from coal and cars to lumber, grain, finished products, and crude oil. A good chunk of the revenue comes from the U.S. operations, providing a hedge against potential slowdowns in Canada. When one business segment hits a rough quarter, the others normally pick up the slack.

CN generates healthy profits and significant free cash flow. The board uses the funds to buy back shares and normally gives investors a nice raise every year. The compound annual dividend-growth rate over the past 20 years is about 16%.

Investors who bought $10,000 in CN stock two decades ago would have more than $200,000 today with the dividends reinvested.

The bottom line

Royal Bank and CN are industry leaders and should continue to be solid buy-and-hold picks to help Canadians build wealth inside their RRSP accounts.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. Fool contributor Andrew Walker has no position in any stock mentioned. Canadian National Railway is a recommendation of Stock Advisor Canada.

More on Bank Stocks

A red umbrella stands higher than a crowd of black umbrellas.
Bank Stocks

Best Stock to Buy Right Now: TD Bank or Manulife Financial?

Manulife continues to see momentum in its business and stock price, while TD Bank stock remains down and out.

Read more »

how to save money
Bank Stocks

This 5.9% Dividend Stock Pays Cash Every Month

First National Financial (TSX:FN) has a 5.9% yielding dividend that is paid out monthly.

Read more »

cloud computing
Tech Stocks

Best Stock to Buy Right Now: Manulife vs CIBC

Want the best stocks? These two are certainly the best options. But which is the better buy?

Read more »

calculate and analyze stock
Bank Stocks

Is National Bank of Canada Stock a Buy for its 3.3% Dividend Yield?

While National Bank stock might seem to have a lower dividend yield, its upside could offer a valuable way to…

Read more »

stock research, analyze data
Bank Stocks

Canadian Bank Stocks: Buy, Sell, or Hold?

There are opportunities and risks on the horizon for the Canadian banks.

Read more »

data analyze research
Bank Stocks

Where Will TD Stock Be in 5 Years?

Toronto-Dominion Bank (TSX:TD) has taken a beating over the last year. Where will it be in another five?

Read more »

Paper Canadian currency of various denominations
Bank Stocks

1 Magnificent Canadian Dividend Stock Down 28% to Buy and Hold for Decades

This top Canadian dividend stock is underperforming its large peers this year, but a turnaround could be on the horizon.

Read more »

data analyze research
Bank Stocks

Is BMO Stock a Buy for its 4.8% Dividend Yield?

Canadians are looking to cut back, and BMO stock is on board. But it could also be a top stock…

Read more »