RRSP Alert: 3 Great Canadian Dividend Stocks With Huge Upside Potential

These top Canadian stocks all raised their dividends in 2020 and could deliver significant returns to RRSP investors in 2021 and beyond.

Canadian investors with self-directed RRSP accounts are searching for the best stocks to add to their retirement portfolios in 2021 before the RRSP contribution deadline on March 1.

Why Fortis stock deserves to be on your RRSP buy list

Fortis (TSX:FTS)(NYSE:FTS) is a utility with more than $55 billion in assets located across Canada, the United States and the Caribbean.

Fortis is a great stock to buy when you want a reliable pick during uncertain market conditions. Revenue comes from regulated businesses. This means cash flow should be predictable and reliable.

The board raised the dividend by 5.8% in 2020 and intends to boost the payout be an average of 6% per year through 2025. That’s reassuring guidance for investors who have a buy-and-hold strategy and want steady returns.

The stock appears cheap below $51 per share. Fortis traded as high as $59 before the pandemic. The dividend provides a solid 4% yield with great growth on the horizon.

Long-term RRSP investors have done well with Fortis. A $10,000 investment in the stock 25 years ago would be worth $200,000 today with the dividends reinvested.

Is Enbridge stock a good buy today for RRSP investors?

Enbridge (TSX:ENB)(NYSE:ENB) is a giant in the North American energy infrastructure sector. The company is best known for its oil pipelines, which move 25% of Canadian and U.S. oil. Enbridge also has extensive natural gas transmission, gas storage, and gas utility assets. The renewable energy business rounds out the portfolio.

Enbridge’s oil pipelines typically run near capacity. Once fuel demand normalizes after the pandemic, the situation should return to 2019 levels. In the meantime, the natural gas and renewable energy assets continue to perform well. In fact, Enbridge was comfortable enough with cash flow to raise the dividend in late 2020. Investors should see the payout increase by 5-7% per year in line with anticipated growth in distributable cash flow.

The stock looks cheap near $42 per share and provides a 7.9% dividend yield. RRSP investors can use the generous payout to buy new shares while the stock remains out of favour. The strategy takes advantage of the power of compounding to build a retirement portfolio.

In the next couple of years, it wouldn’t be a surprise to see Enbridge trade back at the 12-month high around $57.

Why Barrick Gold is now a top dividend stock?

Barrick Gold (TSX:ABX)(NYSE:GOLD) isn’t the first stock that comes to mind when RRSP investors think about dividends, but the company is a different beast today compared to a decade ago.

Barrick went through a difficult restructuring that saw the company slim down its headcount and shed billions of dollars worth of assets to reduced debt. The company then merged with Randgold two years ago to create a gold mining giant with five of the top 10 mines on the planet.

Barrick Gold’s focus is now on high-return assets and the generation of free cash flow. Barrick’s board raised the dividend by 12.5% in November. This was the third increase to the dividend in 12 months, and the payout has tripled since the announcement of the Randgold merger.

The stock appears oversold right now near $30. Gold could move much higher in the next few years, but even if it remains near US$1,900, Barrick Gold should generate significant free cash flow.

The bottom line for RRSP investors

The broader stock market looks overbought right now, so RRSP investor need to be careful. However, Fortis, Enbridge and Barrick Gold all appear cheap at current prices. These companies raised their dividends in 2020, and investors should see steady payout growth in the coming years.

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.

The Motley Fool owns shares of and recommends Enbridge. The Motley Fool recommends FORTIS INC. Fool contributor Andrew Walker owns shares of Enbridge and Fortis.

More on Investing

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

engineer at wind farm
Energy Stocks

Invest $20,000 in This Dividend Stock for $100 in Monthly Passive Income

This dividend stock has it all – a strong outlook, monthly income, and even more to consider buying today.

Read more »

Hourglass and stock price chart
Stock Market

It’s Not Too Late: Invest in These TSX Growth Stocks Now

Solid fundamentals of these top TSX growth stocks could help them maintain strong upward momentum in the years to come.

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

stocks climbing green bull market
Stocks for Beginners

3 TSX Stocks Soaring Higher With No Signs of Slowing

Don't ignore stocks just because they look like they're at a high price. Instead, see exactly why they've driven so…

Read more »

dividends can compound over time
Bank Stocks

Is TD Bank Stock a Buy for Its 5.2% Dividend Yield?

TD Bank stock offers a rare 5.2% dividend yield—can it rebound from challenges and reward contrarian investors? Here's what to…

Read more »

chart reflected in eyeglass lenses
Investing

How Should a Beginner Invest in Stocks? Start With This Index Fund

This Vanguard index fund is the perfect way to start a Canadian investment portfolio.

Read more »

analyze data
Bank Stocks

Is BMO Stock a Buy for its 4.7% Dividend Yield?

Bank of Montreal is up 20% since late August. Are more gains on the way?

Read more »