Your Registered Retirement Savings Plan (RRSP) is the perfect place to house U.S. dividend stocks because the IRS recognizes it, exempting you from the 15% foreign withholding tax on dividends.
However, since withdrawals can incur tax penalties, it’s wiser to focus on total returns, which include both price appreciation and the effects of reinvested dividends.
Even better than reinvesting dividends is reinvesting a steadily growing dividend to benefit from the compounding effect. Two stocks stand out to me as prime candidates for this strategy.
They’re the bluest of blue-chips, each a Dividend King with over 50 years of consistent dividend growth, belonging to the defensive sectors of consumer staples and healthcare. Read on to discover these stalwart investments.
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Johnson & Johnson
Johnson & Johnson (JNJ), established in 1886, is involved in everything from pharmaceuticals to medical devices.
The company’s products address a wide array of health issues including rheumatoid arthritis, psoriatic arthritis, inflammatory bowel disease, and psoriasis; infectious diseases like HIV/AIDS; mood disorders, neurodegenerative disorders, and schizophrenia; oncology including prostate cancer, hematologic malignancies, lung cancer, and bladder cancer; cardiovascular and metabolic conditions like thrombosis, diabetes, and macular degeneration; and even pulmonary hypertension….the list goes on and on!
It’s one of only two companies in the U.S. with a AAA credit rating, a testament to its financial stability and a rare accolade that underscores its safety as an investment. Technically, this makes Johnson & Johnson more creditworthy than the Canadian government!
Johnson & Johnson has also proven its commitment to shareholders with a dividend that has increased for 62 consecutive years. The current yield stands at 3.11%, with an average annualized growth of 5.6% over the last five years.
Procter & Gamble
While Johnson & Johnson used to sell consumer health products like Tylenol, Band-Aid, and Listerine, it has since spun off that division into a separate company.
If you’re looking for exposure to durable consumer products, only Procter & Gamble (NYSE: PG) stands out as a leading company.
Some of their major brands include Tide, Pampers, Gillette, Crest, and Bounty. Take a look around your home, and you’re likely to find several products from their vast portfolio!
Procter & Gamble is also a distinguished dividend king, having increased its dividend for 68 consecutive years. It has a current yield of 2.39% and an average annualized dividend growth of 6% over the last five years.
The Foolish takeaway
Neither Johnson & Johnson nor Procter & Gamble are undervalued right now — outside of extraordinary circumstances like the March 2020 crash, they will rarely be trading at a bargain.
Quality commands a premium, and the best strategy with these stocks is to buy consistently, reinvest the dividends, and exercise patience.
They are the definition of “buy and hold forever” companies — maybe not the most exciting, but incredibly steady.
