Canadians invest in foreign stocks, especially companies listed in the U.S. stock exchange, for diversification. However, those who do must hold them in their Registered Retirement Savings Account (RRSP) or Registered Retirement Income Fund (RRIF).
The reason is the tax treaty with America that grants tax exemption on earnings from US stocks held in Canadian pension plans like the RRSP and RRIF. Since the Tax-Free Savings Account (TFSA) is not considered a pension plan, earnings or dividends from U.S. entities are subject to a 15% withholding tax.
Nearly all stock investors highly regard the Dow Jones Industrial Average (DJIA) components. Market observers say the DJIA is a proxy for the U.S. economy. The index comprises 30 blue-chip stocks or the cream of the crop on the NYSE and Nasdaq Composite.
NVIDIA, the world’s most valuable company, and Sherwin Williams are the newest members. The AI king and paint maker replaced chipmaker Intel and chemicals giant Dow, respectively, effective November 8, 2024.
However, Verizon Communications (NYSE: VZ) and Cisco Systems (NASDAQ: CSCO) are screaming buys if you’re an RRSP or RRIF investor. Besides the relatively lower prices compared to Dow peers, both stocks are ready to soar in 2024 and beyond.
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Rock-solid income stock
Canadian investors earn in two ways from Verizon: price appreciation and dividends. At US$40.44 per share (+14.4% year-to-date), the telco stock pays a hefty 6.7% dividend. Market analysts recommend a buy and/or hold rating. The average operating income of this cash cow in the last three years is approximately US$30 million.
Verizon is also a dividend aristocrat owing to 18 consecutive years of dividend increases. Management has set its sights on Frontier Communications parent. Acquiring the communication and technology services firm means entering the expanding fibre optic internet market where demand for high-speed internet is ever-increasing.
The $170.2 billion communications company is a federal government contractor, too. On November 11, 2024, the U.S. Department of Defense awarded Verizon a 24-month task order extension for the Global Network Solutions (GNS) contract. The contract value has risen to over US$98 million. Verizon also has a 10-year, multi-award US$2.7 billion contract with the U.S. Navy.
Tech gem
Cisco Systems is a gem in the technology sector because it’s a high-growth stock that pays dividends. At US$58.63 per share (+19.8% year-to-date), you can partake in the decent 2.7% dividend yield. CSCO carries a ‘buy’ to ‘strong buy’ rating from market analysts. Their 12-month high price target is US$78 (33% upside).
The US$233.7 billion multinational digital communications technology company is 40 years old. Cisco manufactures and sells networking hardware, software, telco equipment and other high-technology services and products. An ongoing concern is getting a stronger position in the AI data centre market.
Published reports say Cisco Systems is planning to invest in CoreWeave. The hot startup in the artificial intelligence space offers cloud services specifically for AI and machine learning. Cisco wants to be part of and benefit from the AI data centres. Expect the company to soon have cloud service providers or “hyperscalers” as its customers and new revenue contributors.
Long-term holdings
Verizon and Cisco Systems are excellent long-term holdings in an RRSP or RRIF. Canadians don’t have to pay Uncle Sam’s Internal Revenue Service taxes.
