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Retired investors are looking for reliable dividend-paying stocks to help them build self-directed RRSP portfolios. A popular RRSP investment strategy is to use distributions to buy new stocks to take advantage of the power of compounding.
TD (TSX: TD) (NYSE: TD) reported strong first quarter 2022 results, and second quarter numbers are also expected to be strong when released on May 26.
Canada’s second-largest bank by market capitalization has weathered the pandemic in good shape and finds itself with a war chest to deploy. The bank uses a good part of the funds to make a strategic acquisition in the United States. TD is buying First Horizon in a move that will make TD one of the top six retail banks in the US market. The addition of First Horizon’s more than 400 branches in the Southeastern United States expands TD’s branch network which currently stretches from Maine to Florida.
Extensive US operations provide RRSP investors with good access to US economic growth through a major Canadian bank.
TD increased its dividend by 13% at the end of last year. Investors could see another increase in the distribution when the second quarter results are announced. At the very least, a big upside is likely for fiscal 2023. TD has an excellent record of dividend growth with a compound annual increase of more than 10% over the past 20 years.
The stock looks undervalued after the pullback in recent weeks. TD is currently trading near $91.50 per share, down from a 2022 high of around $109. Investors buying now can earn a 3.9% yield and wait for the next rise to increase their returns.
Long-term RRSP investors have done well with TD stocks. A $5,000 investment in stocks 25 years ago would be worth about $100,000 today with dividends reinvested.
Algonquin power (TSX:AQN)(NYSE:AQN) is trading near $18.50 at the time of writing. The stock is up from recent lows, but is still down from the 2022 high around $20 per share.
Like TD, Algonquin Power is in the process of making an acquisition in the United States. The company is buying Kentucky Power for approximately US$2.85 billion in a deal that will add more than US$2 billion in base regulated power generation, distribution and transmission assets and increase the company-wide regulated rate base from 32% to US$9. billion.
The customer base will increase by 19% to more than 1.4 million and the electrical distribution and transmission infrastructure will increase by 37%.
Algonquin Power saw its share price fall last year amid a sell-off in renewable energy stocks. The company has solar and wind assets that don’t provide regulated revenue streams, but the addition of Kentucky Power should prompt investors to view Algonquin Power more as a regulated utility game rather than a renewable energy stock. .
The board has just increased the dividend by 6%. Investors buying at the current price can earn a solid 5% return and wait for the market to see the long-term value of the business.
The bottom line on the best stocks for RRSP investors
TD and Algonquin Power look cheap to buy right now for investors who want to hold the best dividend-paying stocks in their RRSPs. If you have the money to put to work, these stocks are worth being on your radar.