Your Registered Retirement Savings Plan (RRSP) is an ideal vehicle for holding U.S. stocks, primarily due to the tax advantages that many investors overlook.
Outside of an RRSP, dividends from U.S. stocks are subjected to a 15% foreign withholding tax. This means a stock with a 1% dividend yield effectively yields only 0.85% after taxes. Surprisingly, this tax applies even within a Tax-Free Savings Account (TFSA).
However, within an RRSP, this withholding tax on dividends does not apply, making it a smart choice for those looking to maximize their returns on U.S. equities.
Therefore, if you have a cost-effective way to convert CAD to USD, prioritizing U.S. stocks in your RRSP can be a tax-advantaged strategy that also diversifies your portfolio geographically.
Here are two perennial picks that I personally love, both of which are celebrated as Dividend Kings for their long-standing history of dividend growth spanning over 50 years.
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Coca-Cola
Coca-Cola (NYSE: KO) stands out not only for its iconic status but also for its robust business model and financial health.
The company boasts impressive profit margins, with an operating margin of over 32%, underscoring its efficient and resilient operations.
Coca-Cola’s globally recognized and expansive portfolio includes beloved brands like Diet Coke, Powerade, Sprite, and Fanta, among others, which diversify its offerings and enhance its market stability.
Historically, Coca-Cola has also been remarkably generous to its shareholders. A single share purchased in 1919 would have split into 9,216 shares today.
Furthermore, Coca-Cola has a commendable record of dividend growth, with dividends increasing for 63 consecutive years. Over the last five years, dividends have grown by an average of 3.8% annually.
Current dividend yield: 2.7%
Procter & Gamble
Take a moment to glance around your house; it’s likely that you’re using several products manufactured by Procter & Gamble (NYSE: PG).
From Tide laundry detergent and Bounty paper towels to Pampers diapers and Crest toothpaste, Procter & Gamble’s array of household brands integrates seamlessly into daily life.
Like Coca-Cola, Procter & Gamble exhibits robust financial health with a resilient operating margin of 21.4%. This stability is mirrored in its commendable dividend record.
Procter & Gamble has not only been increasing its dividend for 68 consecutive years but has also done so at a more rapid pace than many of its peers, with an annualized increase of 5.9% over the past five years.
Current dividend yield: 2.4%
The Foolish takeaway
Coca-Cola and Procter & Gamble stand as long-established dividend kings, operating in defensive industries with perennial demand. Their above-average yields and consistent dividend growth make them ideal candidates for holding within an RRSP, where dividends can be fully reinvested without the deduction of foreign withholding taxes.
