The Registered Retirement Savings Plan (RRSP) is primarily for Canadians to save for their retirement. In most cases, the money you contribute to your RRSP is parked in there for many years. So, it’s logical to invest in solid stocks for long-term wealth in the account unless you plan to take money out for the Home Buyers’ Plan or Lifelong Learning Plan. In these cases, you should be more conservative about how you invest that money when you plan to withdraw.
Let’s say you’re investing for the very long term; other than Canadian dividend stocks, you can also consider investing in U.S. dividend stocks in your RRSP as a part of your diversified portfolio. Canadians can earn the full qualified U.S. dividends in their RRSPs. In other accounts, such as the Tax-Free Savings Account (TFSA) and non-registered taxable accounts, there’s a 15% withholding tax on U.S. dividends.
Here are two great dividend stocks you can consider buying and holding for total returns in your RRSP.
U.S. dividend stock for your RRSP: Johnson & Johnson
Johnson & Johnson (NYSE: JNJ) is a rare find in today’s higher interest rate environment, as it enjoys an AAA balance sheet. So, it is a conservative holding that investors can park money in, particularly since the dividend stock is cheap.
The healthcare giant has quality earnings that have been resilient through the economic cycle. Its earnings and dividend have also been steadily growing for the long haul, making it a low-risk stock holding for retirement accounts.
Specifically, in the past 10 years, it increased its adjusted earnings per share at a compound annual growth rate (CAGR) of 6% (for a total growth of almost 80% in the period), which drove healthy dividend growth at a CAGR of 6.1% (for total growth of 81%).
At US$149.85 per share at writing, it offers a decent dividend yield of 3.3% and trades at a price-to-earnings ratio of about 14.7. Given the quality of its earnings, it has some valuation expansion potential. Combining an assumption of a 5% earnings growth rate, the blue-chip stock could deliver total returns of more or less 10% over the next five years.
Brookfield Infrastructure Partners
Brookfield Infrastructure Partners (TSX: BIP.UN) is another worthy long-term RRSP holding. Like Johnson & Johnson, the top utility stock has paid increasing income to its unitholders for more than a decade. Specifically, in the past 10 years, Brookfield Infrastructure raised its cash distribution at a CAGR of 8.3%, supported by growing funds from operations on a sustainable payout ratio.
It owns and operates a diversified portfolio of global infrastructure assets with stable cash flows, high margins, and strong growth prospects from a combination of organic growth and an ongoing capital-recycling program. Overall, it targets a long-term return on invested capital of 12-15%.
Its portfolio consists of resilient utility assets for transmission and distribution, transport assets in rail, toll roads, and diversified terminals, midstream assets to transport, store, and process energy, and data infrastructure assets to transmit, distribute, and store data.
The business targets funds from operations growth of north of 10% and cash distribution growth of 5-9% per year, which seems achievable from its business strategy and track record of execution. At $41.98 per unit, analysts believe shares trade at a decent discount of over 20% and offer a good yield of close to 5.3%.
