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moneysense.ca, 22/08/12
Canadian Stocks Paying US Dollar Dividends
Imagine for a moment that Joe Canadian purchases shares in Encana (TSX: ECA) on the Toronto Stock Exchange. Joe holds the stock in the CAD side of a taxable investment account. It so happens that Encana, like many other Canadian resource companies pays dividends in US dollars. When Joe receives Encana dividends in his account, his broker will charge a hefty foreign exchange conversion fee and deposit Canadian dollars into Joe’s investment account.
The disclosure of exchange fees charged on dividends received in a currency that is different from that of the holding account leaves much to be desired. TD Waterhouse, for instance, adds the note “CONVERT TO CAD @ x.xxx” to such dividend payments in the activity screen but if you look at the monthly brokerage statement, there is no indication that dividends were converted and foreign exchange fees charged. Therefore, Joe might remain blissfully unaware that a foreign conversion fee is being charged on dividends that he receives.
Fortunately, Joe can take some steps to avoid at least some of the foreign exchange fees on his dividend payments. If a Canadian stock pays dividends in US dollars, Joe can contact his broker and request the shares be journaled to the USD side of the account. Dividends received after the shares are journaled will remain as US dollars and will be credited to the USD investment account. The reverse is also true. If a stock purchased on an US exchange pays dividends in Canadian dollars (Canadian banks are a good example), Joe can avoid currency conversions by journaling the shares to the CAD side of the account. If Joe holds all his accounts at a brokers who is able to segregate CAD and USD holdings in registered accounts such as RRSPs and TFSAs, Joe may be able to avoid these forced foreign exchange conversions altogether.
The TSX website is good place to check the currency of the dividend payments. The following Canadian stocks pay dividends in US dollars (the list is courtesy of a Canadian Money Forum member):
Encana Corp. (ECA)
Talisman Energy Inc. (TLM)
Potash Corp. of Saskatchewan (POT)
Agrium Inc. (AGU)
Methanex Corp. (MX)
Barrick Gold Corp. (ABX)
Goldcorp Inc. (G)
Kinross Gold Corp. (K)
Yamana Gold Inc. (YRI)
IAMGOLD Corp. (IMG)
Inmet Mining Corp. (IMN)
Thomson Reuters Corp. (TRI)
Magna International Inc. (MG)
Brookfield Office Properties Inc. (BPO)
Brookfield Asset Management Inc. (BAM.A)
Brookfield Infrastructure Partners LP (BIP.UN)
Brookfield Renewable Energy Partners LP (BEP.UN)
WaterFurnace Renewable Energy Inc. (WFI)
moneysense.ca, 22/08/12
Good list! Another small company which does the same – WaterFurnace Renewable Energy (TSX: WFI).
Good post CC.
This might be a topic for another post, but are you aware of which online discount brokerages meet the criteria of being: “brokers who [are] able to segregate CAD and USD holdings in registered accounts such as RRSPs and TFSAs”?
Trying to stay ahead of this sounds like a pain even at a discount broker like BMO Investorline that allows customers to split their accounts. Each time you buy a particular stock in CAD, you have to call them to get it moved to the US side.
An even bigger issue is all the US-denominated shares in RRSPs that continue to sit in the Canadian half because customers don’t understand the issue. I’d be happy if I could instruct BMO to never convert currencies unless I explicitly ask for it.
@CanadianInvestor: Thanks Jean. I’ve added WFI to the list.
@Returns Reaper: Among the big brokers, RBC Direct Investing & BMO InvestorLine allow you to keep USD and CAD segregated in all registered accounts except RESPs.
@Michael James: I agree with your take. It would be nice if brokers could make this automatic but I don’t think there will be much movement unless clients make some noise. The forced currency conversion is a nice profit centre that brokers will be loathe to make changes without some push.
My head is spinning about the trade-offs between forced currency conversion and tax efficiency.
1) If I own a Canadian company (say Encana)that is inter-listed and that pays dividends in US dollars to a US account – are the dividends still eligible for the Canadian dividend tax credit?
According to Encana’s website: http://www.encana.com/investors/shareholder/dividends.html
“Canadian Addresses Dividends payable to shareholders (including individuals or intermediary accounts) with a “registered” address in Canada shall be converted into and paid in Canadian funds at the rate quoted for Canadian funds by the Bank of Canada at noon on the Record Date.| In addition, “all dividends paid on its common shares will be designated as “eligible dividends” for Canadian income tax purposes. This designation will apply until a notification of a change is posted on this website.”
To me, this sounds like even if I hold Encana in a US$ account, the dividends would be converted to C$ and eligible. However, wouldn’t my broker then have to convert the dividends back to US$? If that’s the case, there is no advantage and a Canadian should generally hold Encana in a C$ non-registered account.
2) Where should someone hold the Brookfield subsiduaries (Infrastructure/Energy) to minimize currency conversion costs and to maximize tax efficiency?
is it true that brokers or at least one broker is supplying currency conversion figures in temporary activity or transaction screen but not on statement ?
i’m unable to see for myself because all my stocks are in the correct accounts according to currency of the dividend … ie no FX conversions … er, sorry … not trying to be smug …
i don’t see how brokers could ever separate stocks on this basis for clients. The picture keeps changing, although gradually. A few at a time, canadian multinationals are switching to paying their dividends in USD. Talisman is the most recent that i know of. I’d imagine that a lot of their decision to do so rests upon the wishes of their largest shareholders, when these are american.
where i do fault the brokers is that their licensed representatives are not trained to handle this issue, so quite often one finds the reps denying what is happening. The dividend is paid in both currencies, the reps will say. There is no conversion & there is no FX fee, the reps will say.
this is not any kind of effort to mislead imho. It’s just that the issue is complex & the reps don’t know any better.
(to piker):
Q: will canadian stock held in US account in order to receive USD dividend without FX fees still be eligible for full canadian dividend tax credits ?
A: yes
Q: will such stock be subject to US withholding tax ?
A: no
Hi CC,
I have double checked CNQ in my TDWH account as well as on TSX web site. It pays dividend in Canadian, not US.
Excellent artcile btw, really really helpful.
@Peter, @Michael: Peter is absolutely correct. CNQ pays dividends in CAD. Sorry for the error.
The TMX web site agrees with Peter than CNQ pays dividends in CAD.
[...] 3. Canadian Stocks Paying US Dollar Dividends @ Canadian Capitalist. [...]
CC great post, and resource! I’ve had a couple of readers ask me about this, and didn’t have an answer. Is there an underlying reason why these Canadian companies would pay their dividends in U.S. dollars?
Cheers
The Dividend Ninja
[...] Canadian Capitalist wrote an informative post on Canadian Stocks Paying US Dollar Dividends (mostly resource). This can cause some confusion for investors who may be hit with various foreign [...]
Great post.
Mark
Great list CC!! I don’t own any of the companies on the list right now, but this is good to know.
[...] Canadian Capitalist wrote a great post about how to manage Canadian stocks paying $USD dividends. [...]
[...] 4. Canadian Stocks Paying US Dollar Dividends @ Canadian Capitalist. [...]
Amongst these stocks paying dividends in $US, there are those which also pay dividends in $CDN.
Well, it should be interesting post and thanks to canadian capitalist for share a great post about how to manage Canadian stocks paying $USD dividends.
@Harry: A stock will pay its dividend either in CAD or USD. If you hold one of the stocks in this list and you received CAD, it may be because your broker converted the currency before depositing the proceeds in your account.