3 Oversold Dividend Stocks to Start Your Self-Directed RRSP Today

Here’s why Inter Pipeline Ltd. (TSX:IPL) and two of Canada’s largest companies deserve to be on your RRSP radar today.

| More on:
Path to retirement

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn moresdf

The pullback in the stock market has spared few sectors, and some quality companies with solid dividends have fallen to the point where investors can pick up attractive yield and a shot at some significant upside in the stock price.

Let’s take a look at three companies that might be interesting RRSP picks right now.

Inter Pipeline (TSX:IPL)

Inter Pipeline trades at $21 per share compared to $25 in early 2018 and a five-year high near $39. At the current price, investors can pick up a dividend yield of 8%.

Any time the yield on a distribution starts to drift above 7%, investors need to be careful, as it suggests the market is starting to anticipate a potential cut. In many cases, the concerns turn out to be valid, and while it is impossible to say IPL’s payout is 100% safe, the odds are pretty good that this is the case.

IPL is a niche player in the energy infrastructure sector with natural gas liquids (NGL) processing, oil sands pipelines, and conventional oil pipelines in Canada. The company also has a growing bulk liquids storage business in Europe.

The business generated record net income of $169 million in Q3 2018, representing a 19% increase over the same period last year. The quarterly payout ratio came in at 55%, so there should be ample room to support the distribution.

Royal Bank (TSX:RY)(NYSE:RY)

Bargain hunters have already started to buy Royal Bank after its recent drop to $90 per share from the 2018 high of $108. At the time of writing, the stock trades for $96 per share, which still looks cheap, given the earnings outlook and the balanced nature of the company’s revenue stream.

Management expects to see annual earnings growth of at least 7% per year over the medium term. That is in line with the fiscal 2018 performance and should support dividend hikes each year of about the same amount.

The current payout provides a yield of 4%.

Canadian National Railway (TSX:CNR)(NYSE:CNI)

CN is one of those stocks you can simply buy today and forget until you decide to retire. The company has a unique strategic advantage in that it is the only rail operator in North America with lines connecting three coasts.

Management is investing billions in new engines, rail cars, and network improvements to make sure the company can meet rising demand and compete with trucking companies and other railways along some overlapping routes.

The stock has bounced off the recent low of $96.50 to $105, but it still appears cheap. In October, the shares fetched $118.

CN has one of the best dividend-growth track records in the TSX Index, and while the yield is only 1.7%, investors get rewarded with big increases and aggressive share-buyback programs. Investors who bought this stock 20 years ago and reinvested all the dividends in new shares have watched an initial $5,000 investment grow to more than $100,000 today.

The bottom line

Inter Pipeline, Royal Bank, and CN should be solid buy-and-hold picks for a self-directed RRSP. An equal investment in the three stocks would provide and average yield of about 4.5% and offer a chance at some nice upside once sentiment improves.

Other stocks are also worth considering right now.

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.

David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. Fool contributor Andrew Walker has no position in any stock mentioned. Canadian National Railway is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

growing plant shoots on stacked coins
Dividend Stocks

5 Dividend Stocks to Buy With Yields Upwards of 5%

These five companies all earn tonnes of cash flow, making them some of the best long-term dividend stocks you can…

Read more »

funds, money, nest egg
Dividend Stocks

TFSA Investors: 3 Stocks to Start Building an Influx of Passive Income

A TFSA is the ideal registered account for passive income, as it doesn't weigh down your tax bill, and any…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

3 of the Safest Dividend Stocks in Canada

Royal Bank of Canada stock is one of the safest TSX dividend stocks to buy. So is CT REIT and…

Read more »

Growing plant shoots on coins
Dividend Stocks

1 of the Top Canadian Growth Stocks to Buy in February 2023

Many top Canadian growth stocks represent strong underlying businesses, healthy financials, and organic growth opportunities.

Read more »

stock research, analyze data
Dividend Stocks

Wherever the Market Goes, I’m Buying These 3 TSX Stocks

Here are three TSX stocks that could outperform irrespective of the market direction.

Read more »

woman data analyze
Dividend Stocks

1 Oversold Dividend Stock (Yielding 6.5%) to Buy This Month

Here's why SmartCentres REIT (TSX:SRU.UN) is one top dividend stock that long-term investors should consider in this current market.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

Better TFSA Buy: Enbridge Stock or Bank of Nova Scotia

Enbridge and Bank of Nova Scotia offer high yields for TFSA investors seeking passive income. Is one stock now undervalued?

Read more »

Golden crown on a red velvet background
Dividend Stocks

2 Top Stocks Just Became Canadian Dividend Aristocrats

These two top Canadian Dividend Aristocrats stocks are reliable companies with impressive long-term growth potential.

Read more »