5 stocks I’m considering for our RRSP in 2019

With 2018 RRSP season gone, it’s time to focus on 2019 RRSP. As you may recall, since I started working full time over 12 years ago, I have been maximizing my RRSP contribution room each year. I’m not about to let 2019 become an exception.

Some people may argue, why invest in RRSP when you can invest in TFSA and have the investment grow tax-free? Yes, RRSP withdrawals are taxed as normal income but there are certainly ways to reduce or eliminate the RRSP tax. Tax implications aside, I do think RRSP is a great retirement vehicle (no wonder it’s called retirement savings plan ha!). This is because your annual RRSP contribution room will most likely be much higher than the TFSA annual contribution limit. For example, if you make more than $33,334 a year, your RRSP contribution room will be more than the $6,000 allowed for TFSA.

Don’t get me wrong, I’m not saying to only contribute to your RRSP. Rather than just picking one account to contribute, if you can, I believe it is far better to maximize both your RRSP and TFSA each year.

As a dividend growth investor that invest in both Canadian and US stocks, RRSP is a great place to hold US dividend-paying stocks to avoid paying the 15% withholding tax. Due to the exchange rate, we do not only hold US-listed stocks in RRSP.

Below are 5 stocks that I am considering for our RRSP in 2019.

AbbVie (ABBV)

AbbVie has had a rough start so far in 2019. The stock is trading a near its 52-week low price. Its Q4 results were mixed and its lead product, Humira, had a declining sale of 14.8% internationally. At below $80 price range and a dividend yield of above 5%, AbbVie is looking quite enticing. The payout ratio looks safe if you use the forward-looking EPS of $8.75 per share.

Right now our exposure to the health care sector is pretty small. Ideally I’d like to grow our health care sector allocation by purchasing more AbbVie shares.

We purchased AbbVie shares a few years ago and we’re looking at a nice profit. Adding more AbbVie shares would be increasing our cost average, but I’m not worried about that at all.

Bank of Nova Scotia (BNS.TO)

Throughout 2018 we added 76 BNS shares. I believe this trend will mostly likely continue in 2019. At the current price level of ~$72, BNS appears to be undervalued (thanks to FAST Graphs). The market was disappointed by the latest earnings but the depressed share price means a great entry point for long term investors like us.

For BNS, I continue to like how geographically diversified they are. They own branches far beyond Canadian borders – you’ll find BNS branches in Latin America and South America too. The geographical diversification, I believe, will allow BNS to continue to grow its revenues.

BNS has been paying dividends since the late 1800s and has never suspended its dividend payments. At a dividend yield of ~4.7%, I am happy to continue holding on the stock, collect dividends, and wait for the share price to go up.

Discover Financial Services (DFS)

Unlike MasterCard or Visa, DFS has seen some growth setbacks in recent years and the stock price reflects that. However, the company finally showed some positive signs in its latest quarterly results as the company saw a 7% rise in revenue.

By now, you’re probably wondering, why would I consider DFS over the likes of MasterCard or Visa?

Simple.

Intrinsic value.

When I started doing more research, I was surprised to see that DFS has a ridiculously low 5 year expected PEG ratio of 0.49 and a forward PE of 7.49. At a return on equity of 24.9%, a payout ratio of 19.26%, and a 5-year dividend growth rate of 15.2%, the stock looks quite attractive from a long term dividend growth investor’s point of view. Not to mention an 8 year of dividend increase history. Considering that we purchased Visa when it was having some difficulties and the stock price has almost doubled since, buying DFS when the stock is undervalued may pay off quite well in the long run.

Qualcomm (QCOM)

Qualcomm share price has gone up and down like a roller coaster the last 12 months with the stock price trading at a nearly 52-week low today. This is mostly because Qualcomm has been in a long legal battle with Apple and the latest Qualcomm chipsets aren’t found on iPhone XS and XR.

Despite these headwinds against Apple, I believe Qualcomm is in a favourable position with the future 5G technology. Its latest 5G chipset, SDX55, is much further ahead than Intel’s XMM 8160 chipset. This lead in 5G technology should allow Qualcomm to have a strong revenue growth with many years to come (you can sell lead technology at a much higher premium and higher gross margin). Qualcomm’s 5 year expected PEG ratio, return on equity, EBITA, and operating cash flow all look solid. The only red alarm is its over 100% payout ratio. Knowing this, I expect Qualcomm’s dividend growth to slow down in the near future until the company gets its finances in order.

Purchasing more Qualcomm shares might be a higher risk move so if we do purchase some Qualcomm shares, we probably will only purchase less than $2,500 worth of shares to limit our exposure.

Vanguard Ex-Canada All Cap ETF (VXC.TO)

Ok technically this isn’t an individual dividend-paying stock and not a US listed stock. But I quite like VXC.TO because of the following reasons:

  1. nstant international exposure to markets like US, Japan, UK, China, and France.
  2. Owning the likes of Microsoft, Amazon, Apple, Alphabet, Berkshire Hathaway sounds pretty awesome to me.
  3. VXC.TO holds a total of 12,305 individual stocks at a super low MER fee of 0.27%. There’s no way for us to hold that many stocks and manage them all.

VXC’s distribution yield is about 1.90%, which is certainly not as high as say owning Microsoft or Apple directly. But I am OK with the lower distribution yield given the geographical and sector diversification this index ETF provides. Not paying any trading commissions with Questrade for ETFs is another good reason to go with VXC.TO.

Summary

The above are 5 dividend-paying stocks that I’m currently considering for our RRSP in 2019. There are certainly a lot more stocks that I am monitoring and considering but it would be too long of an article to write up all of them.

Given the poor CAD to USD exchange rate, I may avoid converting CAD to USD as much as possible and focus more on Canadian dividend-paying stocks. We may only purchase US dividend-paying stocks using dividends that we collect in US currency.

Dear readers, what are some dividend paying stocks that you’re considering?

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18 Comments

  • Reply
    Eric
    March 7, 2019 at 6:23 am

    Hey Bob,
    Have you considered XAW instead of VXC?
    XAW has a better structure for foreign withholding taxes, see Justin Bender’s comparison (https://www.canadianportfoliomanagerblog.com/war-of-the-worlds-ex-canada/). XAW also seems to have a lower MER, higher yield and hold more stocks.
    If you want to save even more in cost in an RRSP, you can hold instead the underlying ETFs in USD, the savings are quite dramatic, see Justin’s analysis: https://www.canadianportfoliomanagerblog.com/perfecting-the-perfect-portfolio/
    This discussion in reddit made a quick table comparing the results of VXC vs XAW vs holding the combo. Compounded over many years it adds up: https://www.reddit.com/r/PersonalFinanceCanada/comments/4gfky8/vxc_vs_xaw/

    Cheers

    • Reply
      Tawcan
      March 7, 2019 at 9:43 am

      Hi Eric,

      I’m very well aware that XAW has a lower MER and higher yield. At this time we already hold quite a bit of VXC shares so I’m not sure if it makes sense to switch to XAW. Definitely something to consider.

      • Reply
        Eric
        March 12, 2019 at 9:43 am

        Hi Bob,
        What is the problem of selling VXC to buy XAW? It is a sheltered account and you have Questtrade, right? so no taxes and no fees for ETF transaction, no?
        I don’t see any advantages for VXC, or is there one?

        • Reply
          Tawcan
          March 12, 2019 at 12:23 pm

          Questrade charges commission for selling and we own VXC across multiple accounts.

          • Eric
            March 13, 2019 at 8:40 am

            I see. I’m with NBDB and there is no fees to buy or sell, provided they are 100+ shares per transaction. I thought Questrade had free ETFs both ways. I guess you could calculate the gains in MER, yield and Foreign Withholding Taxes (which would compound over the years) and compare with the cost of selling.
            Have you read Justin/Dan’s white paper on Foreign Withholding taxes? It provides yet a better strategy to save more.

            https://www.pwlcapital.com/wp-content/uploads/2018/06/2016-06-17_-Bender-Bortolotti_Foreign_Withholding_Taxes_Hyperlinked.pdf

            Once the portfolio grows, it becomes more interesting to to through the hassle of managing more ETFs.

  • Reply
    Chris
    March 7, 2019 at 12:01 pm

    Given that 100% of the dividend stocks I currently owned are Canadian, I have have decided that 2019 is the year when I will start buying some US dividend stocks.

    Considering the following:
    ABBV
    AT&T
    IP (International Paper)
    XOM
    DUK
    GIS

    • Reply
      Tawcan
      March 7, 2019 at 2:08 pm

      A good list of considerations. AT&T has been hammered down quite a bit this year.

  • Reply
    Edward Patton
    March 7, 2019 at 12:12 pm

    Hi Bob. Better Investing (betterinvesting.org) has a great tool (SSGPlus) for graphically viewing fundamentals and determining fair value. The membership is fair priced at $118 US for SSGPlus. What’s cool about it is that you can also see what the community is valuing the stock at. It covers US and Canadian stocks and also changes it’s analysis when doing banks. There are some good youtube videos on how to use it. The youtube “Roundtable” investors (aka Manifest Investing) use the tool for valuation and quality judgements. They are beating the market by 5%!
    Thanks for posting the Fast Graphs link. I’ll see how it compares.
    If you are interested, we can do a team viewer session to show you how the SSGPlus tool works (but there are lots of youtube videos on it).

    • Reply
      Tawcan
      March 7, 2019 at 2:09 pm

      Thank you Edward for the SSGPlus suggestion, will take a closer look.

      • Reply
        Edward Patton
        March 13, 2019 at 1:12 pm

        Hi Bob. I reveiewed Fast Graphs and at their membership fee of $480/yr, it’s pretty expensive compared to Better Investing’s (BI) tools at $118 per month. One thing BI’s tool does not have (yet) is the funds from operations needed for REITs. Beyond that, the tools look very similar, but BI’s company comparison tool and member sentiment tools seem better to me.

        • Reply
          Tawcan
          March 13, 2019 at 1:38 pm

          Thank you Edward, that’s good to know. I’ll have to take a look at BI when I have a bit more time.

        • Reply
          Edward Patton
          March 13, 2019 at 6:09 pm

          Opps, I meant BI tools and research are $118/yr (NOT per mo).

  • Reply
    Wally
    March 7, 2019 at 2:42 pm

    You have some great pics here Bob. I also own BNS and VXC. I am looking to add more to my position as well in my RRSP. Its a great vehicle to take advantage of. Keep the posts coming,

    • Reply
      Tawcan
      March 7, 2019 at 5:28 pm

      Thank you. We’ll probably continue adding BNS. 🙂

  • Reply
    Passivecanadianincome
    March 8, 2019 at 6:58 am

    nice list Bob. Both bns and abbv are most likely my buys for the next 2 months.

    Although 3m has now went under the 200$ mark. And ntr may drop under 70 (Basic materials is my lowest sector followed by industrial atm)

    qcom is a interesting pick that could do very well. I bought cisco when it was down and out and its one of my best performing stocks.

    Im going to try to ignore the currency conversion atm. Our dollar sucks but I think canadas economy is losing speed. (especially with line 3 now delayed a yr).

    I dont see any catalyst to prop the dollar up and have even heard suggestions that they may lower the lending rate this year.

    Who knows though? haha

    cheers Bob!

    • Reply
      Tawcan
      March 8, 2019 at 12:24 pm

      3M is interesting but I think it’s a bit overvalued. Yea the dollar sucks right now so it’s tough to convert CAD to USD…

  • Reply
    Chris @ Mindful Explorer
    March 11, 2019 at 4:12 pm

    I had VXC but sold all of it and bought XAW instead as Dan Bartolli showed it had a better overall return than the Vanguard product. Here is the update on his comments…
    https://www.canadianportfoliomanagerblog.com/war-of-the-worlds-ex-canada/

    • Reply
      Tawcan
      March 12, 2019 at 8:46 am

      Definitely something to consider. I’m debating whether to sell all of our VXC and buy XAW instead.

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