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Cedar Fair, which operates 13 amusement parks including Canada’s Wonderland, is an attractive investment because that line of business is fairly stable with high barriers to entry. THE CANADIAN PRESS/Richard Buchan

Richard Buchan/The Canadian Press

U.S. dividend stocks can be appealing for income and diversification, but they are best parked in a registered retirement savings plan (RRSP).

This move allows Canadian investors to avoid the 15-per-cent withholding tax the U.S. government imposes on the dividends that U.S. companies pay out. That tax applies to these securities in non-registered and tax-free savings accounts.

Unlike Canadian dividends, which qualify for a reduced tax rate in a non-registered account, U.S. dividends don’t get special treatment. They are fully taxable.

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We asked three portfolio managers for their top U.S. dividend stock picks for an RRSP.

Aubrey Hearn, head of equities, vice-president and senior portfolio manager, Sentry Investment Management, a division of CI Investments Inc.

His fund: Sentry U.S. Growth and Income Fund

The pick: KKR & Co. Inc. (KKR-N)

52-week range: $20.74 (U.S.) to $30.30 a share

KKR, a global private-equity firm with more than $200-billion (U.S.) in assets, is benefiting from a demand for alternative investments in a low interest rate environment, Mr. Hearn says. “Since 2005, it has grown its assets at about a 17-per-cent compounded annual growth rate.” New York-based KKR’s clients include sovereign wealth and pension funds. “KKR can grow materially faster than your average S&P 500 company,” he says. “Its goal is to double its book value every five years.” Its shares trade attractively at about 1.6 times book value, and 14 times 2020 earnings, Mr. Hearn adds. “It also has a decent dividend yield of about 1.7 per cent.” The risks include a market downturn, which could hurt the sale and value of its private companies, and potentially overpaying for acquisitions.

The pick: Cedar Fair LP (FUN-N)

52-week range: $45.58 (U.S.) to $64.86 a share

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The North American amusement park operator is an attractive investment because that line of business is fairly stable with high barriers to entry, Mr. Hearn says. “There hasn’t been a new [amusement] park built in the United States in about 50 years.” Sandusky, Ohio-based Cedar Fair operates 13 parks, including Canada’s Wonderland in Vaughan, Ont. Cedar Fair rebuffed a $70-a unit (U.S.) takeover bid from Six Flags Entertainment Corp. this past autumn, saying the offer would not compensate shareholders for giving up its tax-advantageous master limited partnership structure. Cedar Fair’s units, which yield about 6.9 per cent, trade at about 15.5 times 2020 earnings, he adds. Weather is a risk but the purchase of assets in Texas last year is aimed at reducing the seasonality of its business.

Robert Lauzon, managing director and deputy chief investment officer, Middlefield Capital Corp.

His fund: Middlefield U.S. Dividend Growers Class

The pick: AT&T Inc. (T-N)

52-week range: $28.92 (U.S.) to $39.70 a share

AT&T is no longer “a boring telco” after acquiring media and entertainment conglomerate Time Warner Inc., Mr. Lauzon says. The Dallas-based telecommunications giant’s growth stems mainly from its wireless and Internet services business, but it will also benefit from bundling content from its soon-to-be launched HBO Max streaming service, he says. That gives AT&T a leg-up on rivals as it rolls out its 5G next-generation cellular network to deliver data at faster speeds. The risk is whether it can sell assets to reduce its net debt of $159-billion (U.S.) and launch HBO Max successfully. “We are betting on management to execute,” Mr. Lauzon says. “HBO is a strong franchise.” AT&T shares, he suggests, should be able to generate about a 10-per-cent total return this year.

The pick: Gilead Sciences Inc. (GILD-Q)

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52-week range: $60.89 (U.S.) to $70.50 a share

Shares of Gilead Sciences have struggled, but there are signs that it has reached an inflection point, Mr. Lauzon says. The Foster City, Calif.-based biopharmaceutical company has suffered from falling sales of its Hepatitis C drug, but “we expect the revenue from its HIV drug franchise to remain strong and stable.” It has new management headed by Daniel O’Day, who became chief executive officer last year. He was formerly CEO of Roche Pharmaceuticals AG and has a background in Gilead’s new focus on oncology and inflammatory disease. Growth areas include Gilead’s CAR-T cell therapy to treat cancer, while Gilead and partner Galapagos NV also have an arthritis drug in the pipeline, Mr. Lauzon says. Gilead’s shares, which have a 3.9 per cent dividend yield, trade at a discount to peers.

Donny Moss, senior portfolio manager, Industrial Alliance Investment Management Inc.

His fund: IA Clarington U.S. Dividend Growth Fund

The pick: Mid-America Apartment Communities Inc. (MAA-N)

52-week range: $96.77 (U.S.) to $140.15 a share

This apartment real estate investment trust (REIT) benefits from a focus on the U.S. sun belt with its fast-growing cities and high employment growth, Mr. Moss says. Memphis, Tenn.-based Mid-America Apartment Communities has also done a better job in managing its mid-priced apartments than its peers, so that has led to lower expenses and higher income, he adds. “It’s a conservatively managed company and its debt level is lower than its peers.” This REIT, which yields 3 per cent, has a payout ratio of 65 per cent, so the dividend can grow, Mr. Moss adds. The REIT, which had a 42-per-cent total return last year amid falling interest rates, should garner a high single-digit return including dividends this year. Rising interest rates would be a headwind, but “that is not part of my forecast.”

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The pick: Visa Inc. (V-N)

52-week range: $133.30 (U.S.) to $196.95 a share

This global payments technology company benefits from the continuing shift toward electronic payments, Mr. Moss says. San Francisco-based Visa collects fees on transactions made with its credit and debit cards and has recurring revenue from monthly billing payments. “It has been growing its earnings per share at a 15-per-cent rate, and that can continue for the next few years,” he adds. Although Visa’s dividend has risen by 20 per cent annually over the past five years, it has a small yield because its share-price growth has outpaced dividend growth, Mr. Moss says. Although Visa trades at a premium valuation at about 30 times 2020 earnings, it also has almost zero debt and very low capital expenditures, he notes. A risk would be a serious global economic slowdown.

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