As an investor, total return is your ultimate measure of success, combining both the dividends you receive and the appreciation in share price.
While chasing high-yield stocks can be tempting, focusing solely on dividends might lead you to overlook the more significant potential gains from share price increases, which are often more tax-efficient.
However, within an RRSP (Registered Retirement Savings Plan), you have a unique advantage, especially with U.S. stocks.
Typically, dividends from U.S. companies would be subject to a 15% withholding tax, but within an RRSP, this tax is waived, making it an ideal place to hold such investments.
Here are two top U.S. dividend kings – companies that have increased their dividends for over 50 consecutive years – that have robust compounding potential for long-term growth in your RRSP.
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Coca-Cola
Coca-Cola (NYSE:KO) is a standout example of a dividend powerhouse, having increased its dividend annually for an impressive 62 years.
Over the last five years alone, its dividend has grown by an annualized rate of 3.8%, consistently outpacing inflation. Currently, Coca-Cola offers a dividend yield of 2.7%.
Besides its attractive dividend, the company boasts low volatility with a beta of just 0.6. This means Coca-Cola’s stock price tends to be less affected by market swings, making it a safer bet during turbulent times.
One of the keys to Coca-Cola’s success is its unique business model. The company focuses on producing syrup concentrate, which it then sells to a global network of bottlers who mix, bottle, and distribute the final products. This system allows Coca-Cola to enjoy hefty operating margins of 32.5% and profit margins of 22.9%.
Coca-Cola’s return on equity (ROE), a measure of financial efficiency that gauges how well a company uses investments to generate earnings growth, stands at an impressive 38.8%. This indicates that Coca-Cola is not only profitable but also very effective at reinvesting its earnings back into the company.
Additionally, Coca-Cola has a rich history of stock splits – something that appeals to many investors. If you had bought just one share back in 1919 and held onto it through all the splits, today you would own 9,216 shares!
Procter & Gamble
Procter & Gamble (NYSE:PG) is another staple in many households, with a product lineup that includes everyday essentials.
Such products you might use include Tide detergent, Crest toothpaste, Gillette razors, Pampers diapers, and Pantene shampoo.
The company’s stock exhibits low volatility with a beta of 0.4, reflecting the non-discretionary spending habits associated with its products – people tend to purchase these items regardless of economic conditions.
Like Coca-Cola, Procter & Gamble also boasts robust profitability, with operating and profit margins of 21.4% and 17.7%, respectively. Its ROE stands at an impressive 30.7%, signalling efficient use of equity capital to generate profits.
When it comes to dividends, Procter & Gamble offers a yield of 2.3%, backed by an extraordinary record of 68 consecutive years of dividend growth. Over the last five years, the dividend has grown at an average rate of 5.9% annually.
