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?

Written by Tawcan
Hi I’m Bob from Vancouver Canada, I am working toward joyful life and financial independence through frugal living, dividend investing, passive income generation, life balance, and self-improvement. This blog is my way to chronicle my journey and share my stories and thoughts along the way. Stay in touch on Facebook and Twitter. Or sign up via Newsletter