Buying low and selling high is a proven strategy to make quick bucks in the stock market. However, if the objective is to build wealth, you must hold the stock for the long term. Well-established, mature companies or S&P 500 large-cap stocks, in particular, could make you richer.
Tax implications
The S&P 500 Index tracks the stock performance of 500 of the largest corporations in the United States. However, most Canadian investors limit their U.S. stock holdings because of tax implications. You must pay a 15% withholding tax on dividend income from foreign investments.
If you insist on buying dividend stocks in the New York Stock Exchange (NYSE), hold them in your Registered Retirement Savings Plan (RRSP). Under the tax treaty between Canada and the U.S., only dividends held in a retirement account like the RRSP are exempt from the withholding tax.
Exxon Mobil (NYSE:XOM) and Altria Group (NYSE:MO), two prominent S&P 500 stocks, are ideal for long-term investors. Both American firms also have ownership stakes in Canadian publicly listed companies.
Energy giant
Exxon Mobil has a market cap of US$440.5 billion and is the world’s largest publicly traded international oil and gas company. The energy giant benefitted from a favourable market in 2022, including surging oil prices due to Russia’s invasion of Ukraine.
For the full-year 2022, net profit soared 142% to a record US$55.7 billion versus the full-year 2021. In the first half of 2023, earnings declined 17.2% year over year to US$19.31 billion. Its chairman and chief executive officer (CEO) Darren Woods said the earnings are double the amount earned in a comparable industry commodity price environment five years ago.
In Canada, Exxon Mobil is active in integrated oil and gas activities. It has a 69.6% ownership stake in Imperial Oil Limited, Canada’s largest petroleum refiner. ExxonMobil Canada, an affiliate, owns and operates oil and gas projects in Atlantic Canada offshore.
In July 2023, Exxon announced a definitive agreement to acquire Denbury. Besides the synergies, the experienced developer of carbon capture, utilization and storage (CCS) solutions and enhanced oil recovery will accelerate Exxon’s low-carbon solutions.
Exxon Mobil focuses on returning excess cash to shareholders by increasing dividends and buybacks (up to US$55 billion from 2022 to 2024). At US$110.04 per share, the top-tier energy stock pays a decent 3.36% dividend.
Dividend King
Altria, a dividend titan, trades at US$42.91 per share and pays an over-the-top 8.83% dividend. The parent company of Philip Morris U.S.A. is a Dividend King owing to 53 consecutive years of dividend increases. Management’s top priority is to grow dividends consistently and deliver mid-single digits dividends per share growth annually.
This US$76.6 billion company from Henrico County in Virginia is one of the world’s largest tobacco, cigarettes, and related products producers. It also owns 41% of Canadian cannabis producer Cronos. Today, the tobacco industry leader is moving beyond smoking and transitioning smokers into less harmful smoke-free products.
Rock-steady dividends
Exxon Mobil and Altria are wealth-builders for their rock-steady dividends. However, if you don’t have a place in your RRSP, purchase stocks from the S&P/TSX 60 Index instead. The index houses Canada’s 60 largest companies on the TSX and are great alternatives to S&P 500 stocks.
