Like my TFSA, my RRSP is stuffed with companies with solid growth plans, trade at reasonable valuations, and, most important, have a moat to protect them from significant competition. I don’t want to wake up one day and discover a company I own is suddenly in a weak position.
Let’s take a closer look at three of the top stocks I personally own in my RRSP.
Enbridge
Enbridge (TSX:ENB)(NYSE:ENB) isn’t just the largest holding inside my RRSP. It’s my largest stock position, period.
I live in Alberta — right in the middle of Wexit country — so I’ve heard every argument about the lack of pipelines that are keeping Alberta’s oil from world markets, which led to a bit of an epiphany. If there aren’t enough new pipelines being built, then that must make the existing ones all the more valuable.
Oil pipelines make up about 50% of Enbridge’s earnings, with the rest of the company’s assets spread between natural gas pipelines, its natural gas utility business, and the company’s renewable power generation capability.
While none of these businesses are particularly sexy, they do provide steady earnings and solid growth opportunities. In fact, Enbridge is right in the middle of a $19 billion growth program.
Shares also trade at a reasonable valuation, with recent earnings indicating management’s guidance of $4.30 to $4.60 per share in distributable cash flow for 2019 should be relatively safe. Look for that number to continue to grow over the medium-to-long term, too.
Finally we have Enbridge’s dividend, one of the best in the business. The current yield is just a hair under 6%, and the company should officially announce a 10% dividend increase for 2020 in December. Dividends don’t get much better than this one.
Scotiabank
Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is just behind Enbridge in my RRSP, and is the second-largest position in my portfolio. What exactly attracted me to Scotiabank over Canada’s other top banks?
Although I’m no longer a hardcore value investor, I still have to admit valuation was a big reason I was attracted to Canada’s third-largest bank. Shares were trading persistently below 10x earnings for much of 2019 before the recent rally. Analysts were worried about earnings growth, but I was confident that Scotiabank would continue to deliver over the long-term.
On the growth front, I’m a huge bull on Scotiabank’s international operations, which include significant assets in places like Mexico, Peru, Chile, and Colombia.
Yes, banking in Latin America will be more volatile than a similar business in Canada. But the region also offers better organic growth potential, opportunities to acquire interesting assets, and higher net interest margins.
Scotiabank’s dividend was also a big motivating factor leading me to buy. Shares were yielding more than 5% when I was loading up, although the yield is lower now, checking in at 4.7%. That’s still an excellent payout with 6-8% annual dividend growth potential.
Inter Pipeline
I purchased Inter Pipeline (TSX:IPL) shares because of the company’s stellar dividend history, its potential for additional growth, and its persistently low valuation. Sound familiar?
I understand why some investors don’t think Inter Pipeline should have a premium valuation. More than 50% of its earnings come from three pipelines that transport bitumen from the oil sands to refineries in the Edmonton area.
With little appetite for expansion in the area, investors are skeptical the excess capacity that exists in these pipelines will be filled any time soon.
Management is also spending aggressively on the Heartland Petrochemical Complex, a $3.5 billion project that will turn cheap Alberta propane into plastic resins.
Although Heartland is projected to add $500 million in annual EBITDA to the bottom line, some investors are nervous about the scale of the project and by Inter’s large foray into a somewhat unrelated business.
The good news is investors should be rewarded by buying at today’s depressed levels. Funds from operations should be between $2.10 and $2.20 per share in 2019, which means that investors who buy today are getting a good bargain for their shares, and the dividend yield is up to 7.9%.
Investors shouldn’t expect much in dividend increases until Heartland comes into service in 2021, but the payout should creep ever so slowly higher until then.
