Considering Foreign-Domiciled Dividend Growth Stocks

foreigntaxI was recently asked by a reader to discuss foreign stocks, dividend taxation, and how that applies to some of the stocks I discuss and invest in.

The reader, who goes by wtd7576, commented in my recent article on Unilever PLC (UL):

Nice analysis and good luck.An interesting topic as well as explanation would be to discuss buying a foreign stock like this and its tax ramifications for the average U. S. Investor. Companies ike BP, Royal Dutch Shell, Unilever, etc., are all worth looking at but many investors have shied away from foreign investments due to tax considerations and are you really getting the yield here that they report. Thanks.

So this article will attempt to do just that.

Now, I’m going to limit the scope of this article for the sake of simplicity and brevity. There’s no possible way I could cover dividend taxation across every major country in the world for every investor out there.Β There’s way too much complexity there, as tax circumstances change rather dramatically depending on the situation. It’s difficult enough to navigate my own tax situation.

However, what I will attempt here is to discuss my thoughts on foreign stocks in more general terms, what I personally invest in and why, and how this information mayΒ help you.

Why Foreign Stocks At All?

I think it’s a valid question to ask: Why invest in any foreign companies? Can’t a dividend growth investor just stick to US-domiciled companies?

Well, one could certainly stick to US-listed stocks only and avoid any foreign taxation headaches altogether. And that might not be a bad way to go. After all, most of the major US-domiciled multinational companies that have lengthy track records of paying and growing dividends – think The Coca-Cola Company (KO), Johnson & Johnson (JNJ), and Exxon Mobil (XOM) – typically derive substantial portions of their revenue from sales abroad and do business all over the world. So by investing in a wide selection of high-quality dividend growth stocks with sizable operations abroad you’re already diversifying yourself geographically in regards to international exposure. You’re basically exposing yourself to both developed and emerging markets, and the global economy.

However, I’ve personally found that a number of really high-quality companies that pay substantial dividends and have strong track records of increasing those dividend payouts reside abroad. While the US is certainly fertile ground for excellent investments, especially in the dividend growth stock space, it isn’t the only game in town.

For instance, relating to my recent article on Unilever, this is a company with 14 brands with more than 1 billion euros in annual sales. They own brands like Axe, Ben & Jerry’s, Breyers, Country Crock, Dove, Hellman’s, Knorr, Lipton, and Vaseline. This is a fantastic company that pays out a generous dividend that’s growing, and sports great fundamentals. Why wouldn’t I want to own a piece of this company?

Stick To The Low-Hanging Fruit

So I do own equity in a few foreign companies. Specifically, these companies are: BHP Billiton PLC (BBL), The Bank of Nova Scotia (BNS), BP PLC (BP), Royal Dutch Shell PLC (RDS.B), Toronto-Dominion Bank (TD), Unilever PLC (UL), Vodafone Group PLC (VOD).

Why these companies specifically?Β 

Well, I consider them low-hanging fruit:

  • They’re all domiciled (or partly domiciled in the case of dual-listed stocks) in countries where corporate laws and oversight are similar to the US. We’re talking Canada and the United Kingdom here.
  • The businesses themselves are easy to understand – banking, oil & gas, consumer products, telecommunications, and basic materials are easy to wrap my brain around. For instance, I wouldn’t want to invest in some tech startup in the middle of India anyΒ more than I would want to invest in one in the middle of Silicon Valley. Your standards shouldn’t change simply because the country of origin has.
  • All these stocks are offered on a US exchange. This means I don’t need to worry about foreign stock markets and their laws/protections, currency conversion rates, or whether or not the dividends are qualified. I invest via ADR shares, which stands for American Depository Receipts. ADRsΒ represent ownership in foreign companies, but trade on a US exchange. They basically make it incredibly easy to invest in foreign companies. However, the drawback is that they usually come with fees of some sort for the additional costs of the program – I notice a penny per share is lopped off of the dividend in a lot ofΒ cases.

Foreign Dividend Taxes

There’s one other featureΒ of most of the above stocks that qualifies as “low-hanging fruit”, in my view, and that’s favorable dividend taxation.

UK-domiciled stocks, for instance, do not tax dividend payments to US investors at the local state level, due to a tax treaty between the US and UK. So that means that UK-listed ADR shares, like BP, RDS.B, and UL, do not have any foreign dividend tax withholding. That essentially puts them on par with US-listed stocks from a dividend tax standpoint.

It’s important to note that a number of UK-domiciled stocks have a dual-listing structure. Unilever, BHP Billiton, and Royal Dutch Shell are all examples of this. I have personally chosen to invest in the UK-listed ADRs in these companies so as to avoid any foreign dividend taxation. The details of and reasons behind these dual-listings can be found onΒ any of the respective company’s investor relations sites.

You’ll notice that I also have investments in two Canadian banks. Canada taxes dividends at just 15% at the state level due to a tax treaty, which means my dividend from BNS or TD is a little lighter by the time it gets to me. However, the US allows a dividend tax credit to be filed at tax time so as to avoid double taxation.Β Up to $300 in foreign dividend taxes can be reclaimed directly on the 1040. Anything over $300 will require Form 1116. You can read more about this directly from the IRS.

It’s important to note that while the tax credit is great in that it’s a dollar-for-dollar reduction of your tax liability, there are some limitations there. The credit you can claim is the lesser of the foreign dividend tax paid or the amount of the US tax liability on that income. Basically, the US isn’t going to reimburse over and above what they would tax on the same dividend income.

An interesting aspect aboutΒ Canadian dividends specifically is that if you, as a US investor, hold shares in Canadian corporationsΒ in a qualified retirement account, the dividends generally do not have any foreign tax withholding. However, this doesn’t apply to shares in Canadian REITs. The US and Canada amended their tax treaty back in 2009 so as to allow US investors to avoid the loss of a piece of their dividend payoutsΒ in tax-advantaged accounts. So holding TD, for instance, in an IRA means you collect the full dividend without the usual 15% dividend withholding tax. This benefit is uncommon, as most foreign dividend taxes are lost forever if you’re holding foreign-domiciled shares in a retirement account and youΒ incurΒ foreign dividend tax withholding.

Now, I’m only covering two countries here.Β Obviously, there are a lot of other options out there.Β But when factoring in the low-hanging fruit I was discussing above and favorable taxation laws, I considerΒ stocks domiciled in the UK and Canada to be the best options for US-based dividend growth investors looking for foreign exposure. A lot of other countries just tend to fall in the “too hard” pile for me, but I would recommend serious due diligence if you’re interested in buying stocks in other countries.

I will say that there are two other countriesΒ out there that might want to be considered.

Switzerland is one country that offers some interesting opportunities. For instance, I’m personally interested in initiating a stake inΒ NestlΓ© SA (NSRGY) at some point. It’s a high-quality company with a solid yield, and the 15% foreign withholding tax can be fully reclaimed. In addition, Novartis AG (NOV) shows some promise.

Bermuda is another option. They do not tax dividends at the state level, so stocks like Seadrill Ltd (SDRL) pay out the full dividend with no foreign dividend tax withholding.

Conclusion

So I put this post together real quick to answer the question asked, but it is by no means comprehensive in regards to foreign dividend taxation. That would probably require a 30-page essay to cover in-depth, and even then it wouldn’t really apply to everyone due to individual tax circumstances that can be quite unique.

But I wanted to cover what I do and why, and how that may apply to others out there interested in owning international stocks. I find it quite easy to invest in high-quality dividend growth stocks abroad. UK-domiciled stocks operate a lot like US stocks, except that some pay semi-annual dividends and there is sometimes a small fee attached. In addition, sometimes the dividend raises can be lumpy or uneven due to exchange rates. But these ADRs trade on our exchanges, pay dividends in dollars, and offer an opportunity to own equity in some truly world-class companies. In addition, I find that a lot of UK-listed stocks offer significantly higher yields than some of their US counterparts. Canadian stocks are also a great option as well, as discussed.

There are probably 20-30 high-quality stocks that pay and raise dividends across just Canada and the UK, so I find no reason to really go any further than that, other than maybe Switzerland for a couple of specific stocks. I’d rather pluck the low-hanging fruit than strain myself to reach for higher branches, especially when there’s plenty of fruit to be had at eye-level. Between those stocks and what’s already offered here at home, you’ll certainly not lack ideas or opportunities.

Just make sure that if you are interested in owning any foreign stocks that you perform the same due diligence that you otherwise would with any domestic companies. The research and valuation process should be the same, no matter where the company is domiciled.

Full Disclosure: Long UL, KO, JNJ, XOM, BBL, BP, BNS, RDS.B, TD, and VOD.

What do you think? Are you a fan of foreign stocks? Are the countries discussedΒ fertile ground, or are there better options out there?Β 

Thanks for reading.

Photo Credit: ratch0013/FreeDigitalPhotos.net

Edit: Corrected BBL ticker, and also added note about Canadian REITs.

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130 Comments

  1. Good writeup, DM. I find there is a lot of misunderstanding on the taxations on dividends and capital gains in the masses. As a Canadian investor, I own a lot of US companies for the exposure to some of the best corporations in the world, but hold them in tax sheltered accounts. So, I do not pay a penny in dividend withholding and/or capital gains taxes. Similarly, I intend to add overseas companies (esp from UK and Australia) that have no withholding taxes. UL and BBL are on the top of my list.

    cheers
    R2R

  2. I hold many ADRs in my account similar to yours. Just added to BBL today. I also have BASFY on my watch list.

  3. Great post DM. I also am thinking of adding some Nestle to the portfolio. The ADR would be NSRGY and not NSRGF correct?

  4. DM,

    Great educational post for the readers! Definitely can’t shun away from international businesses they show all of the tall tell sales we love as dividend investors (growth, history, yield). Bermuda’s Seadrill – that fell off my radar for a while, may have to go back in and take a look.

    Also – great point to note about having a foreign taxed entity within your retirement account – poof, lost dollars.

    Thanks again Mantra, talk soon.

    -Lanny

  5. Good write up here Jason explaining some of the nuances of foreign investments. For my purposes, I am not opposed to holding any of those companies in a taxable account versus retirement vehicle, such as an IRA. Currently, my international holdings are split, with UL being held in my taxable Loyal3 portfolio and BBL being held in my IRA. Needless to say, given the current tax code, there isn’t any reason for an investor to not consider foreign stocks as part of a well balanced dividend growth portfolio.

    As a note, I think you meant BBL as opposed to BHP, which is based out of Australia.

  6. Thanks for the explanation! I agree on Unilever–such a high quality company. I wish there were many more low fruit like companies to consider.

  7. Its a pain figuring out the differences but there’s plenty of great dividend growth companies if you look outside the US. Its just important to figure out the tax laws so you own those companies in the right account. Some countries have no tax, some dont withhold if its owned in a qualified retirement account, and some have to be held in a regular brokerage account so you can get the excess taxing back come tax time.

  8. Jason

    Useful information for your readers.

    I wish it was as easy for UK investors to buy US shares (for some reason we don’t have the equivalent of ADR’s over here). If I wanted to buy KO shares for example, my British Pounds would be converted to US Dollars to buy them on the US market, then to make this even worse each quarterly dividend payment would be in USD and then be converted to GBP with commission being paid for this to happen. Also in most cases you need a separate account for US shares from UK shares, so you can’t easily sell a UK share and then use the proceeds to by US shares.

    End result is I don’t own any of the US shares that I think would be a massive benefit to my retirement fund as my feeling is that US shares always seem to perform better than UK shares (FTSE100 was at the same value as Dow Jones about 20 years ago, now it’s almost three times the value).

    Best Wishes
    FI UK

  9. Nice brief on foreign stocks/ADR’s. Even though its obviously, like you said not an in depth write-up like you said, just saying a bit about a topic might let someone know about some information that they can go look up more on their own. For instance, i knew that Canada/US had a tax treaty for their registered retirement accounts, but I forgot that Canada probably also has something similar with Britain. So, thanks for the info/things to ponder πŸ™‚

  10. Hi Jason, Great article
    Its not completely true if you hold Canadian Equities in a US Retirement account, that you do not get hit with foreign taxes. If you hold any Canadian REITs within a US retirement account, they are still subject to the 15% withholding tax. Keep up the great work!.

  11. I guess its also important to make sure that even if there is a treaty that certain companies are ‘qualified investments’. The issue with REITs might just be that they are no included due to the fact that they(at least in Canada) don’t pay corporate taxes, and since those taxes are passed on to unit holders we, those unit holders have to pay the taxes.

  12. Great comment! I would like to understand more on tax-sheltered dividends and gains. I go to Doug Casey’s site (International Man) and he’s got great ways to become independent in this global economy ie. Puerto Rico has 3% corporate tax etc.
    Is it enough to just own stock in these companies or should they be within a vehicle of sorts?

    I myself am drawn to Swiss annuities when it comes to foreign diversification, sprinkle in some Remnimbi and you have a good exposure to the asian growth-powerhouse while being tapered with Swiss stability.

  13. Hello Jason,

    What are your current thoughts on BABA?

    Alibaba (BABA) ROCKS, this is by far one of the fastest growing stocks I’ve seen in a while.
    R/

    Brittney

  14. R2R,

    Thanks for dropping by.

    That’s a great point there regarding buying US stocks inside an RRSP to avoid paying dividend withholding taxes to the US government. There are a lot of tax intricacies out there that are oftentimes country-specific.

    I definitely agree with you regarding widespread misunderstanding/confusion regarding capital gains taxes and dividend taxes. I think people themselves are partly to blame, because this kind of stuff takes a lot of time to thoroughly research, and a lot of people just don’t have the interest and/or time to perform the necessary research. Of course, I’ve also read some blatantly wrong information out there. For instance, I stopped by a site not long ago that basically stated any investors that are outside the US should never buy US dividend stocks because they’ll always pay a 30% dividend withholding tax to the US. I advised the writer that Canadians avoid that via RRSPs and there are numerous tax treaties out there that reduce it to at least 15% for many countries. Those are just a couple of examples where 30% isn’t always true. He still stood by his content, even though it was blatantly wrong. But taxes are something you really can’t broadly apply to everyone, so it’s really up to an individual to decipher taxes that apply directly to them.

    Best regards!

  15. Lanny,

    Thanks for dropping by!

    Glad to put something together. I hope I didn’t write anything incorrect, as I put this together in about two hours last night. But I think it’s fairly accurate for its limited scope. πŸ™‚

    I’m certainly no fan of SDRL, but I wanted to include it as an example. Bermuda is one of maybe a handful of countries out there with no dividend taxation.

    Talk soon! Have a great weekend.

    Cheers.

  16. W2R,

    Ahh, I did mean BBL. Thanks for catching that. πŸ™‚

    I’m with you. With the ease of investing in some of these stocks, especially those based out of the UK, there’s no reason to not consider them. That is, as long as it’s an investment you would make anyway (regardless of where the company is based). But many of these just enhance a well-rounded portfolio, as companies like UL are very competitive with the best we have to offer here.

    Have a great weekend!

    Best wishes.

  17. wtd7576,

    No problem. I hadn’t covered this before, although taxation is a topic I generally try to avoid due to complications and specificity. However, investing in foreign dividend growth stocks is quite easy when we’re limiting ourselves to pretty fertile ground, and I think Canada and the UK definitely qualify. πŸ™‚

    Best wishes.

  18. JC,

    Right. It can become complicated in a hurry if you open yourself up to the world. That’s why I recommend (and stick with) just the two countries listed above. Although, I am open to some Swiss stocks because of the familiarity and tax situation there. But I think it’s somewhat easy to remember that UK-domiciled dividend stocks come with no additional foreign dividend tax withholding, and then your Canadian stocks are generally 0% or 15%, depending on the account. Going beyond that into a lot of other countries could open yourself to some headaches, but to each their own. πŸ™‚

    Thanks for stopping by!

    Best regards.

  19. FI UK,

    That’s a shame that it’s so difficult over there to buy US stocks, when it’s quite easy for us to invest in companies in your country.

    The good news, however, is that your country is full of excellent companies, and one could probably form a well-rounded portfolio just sticking to what you have there, much like a US-based investor could certainly build a well-rounded portfolio using just US-based stocks. It gets a bit more complicated/difficult if you live in a very small country, which is why we’re blessed (in many more ways than that, though).

    Cheers!

  20. In Portugal we don’t have dividend growth companies but we have companies with yields in the range 4%/7%. Very good but the only way to increase dividends is to reinvest them. Not so good like DGI but that’s what we have.
    Commissions and fees are huge to invest in USA or other foreign market. It is hard to do it from here.
    Cheers!

  21. @FI UK, DM I live in the UK and its really easy to buy USA stocks. Just open a US based Charles Schwab Dollar account. OK there will be $/Β£ currency fluctuations but that’s same for many UK based stocks which report in $. I’m in the accumulation phase so my USA $ stocks are just compounding. One difference I note is that USA companies are loathed to cut dividends and make much better DG stocks. UK stocks tend to offer a higher yield (apart from UK REITS where the market is in its infancy compared to USA REITs) but dividend cuts/freezes are more common.

  22. DW,

    Yeah, this was definitely not in-depth in regards to applying to everyone across the board in every country. But I think there’s some food for thought here as it explains my methodology and the reasoning behind it. Specifically, it applies to US investors, so Canadian taxation rules are obviously different.

    But I’m glad it gave you something to ponder! πŸ™‚

    Thanks for dropping by.

    Cheers.

  23. Mr. Stock Fox,

    Thanks for pointing that out. I was unaware of that feature for REITs, but it makes sense. I have edited part of that paragraph to reflect the different treatment for Canadian REITs for US-based investors holding shares in a retirement account. πŸ™‚

    Appreciate you sharing that!

    Best regards.

  24. DW,

    For US-based investors, the IRS defines qualified as:

    The corporation is incorporated in a U.S. possession.

    The corporation is eligible for the benefits of a comprehensive income tax treaty with the United States that the Treasury Department determines is satisfactory for this purpose and that includes an exchange of information program. For a list of those treaties, see Table 8-1.

    The corporation does not meet (1) or (2) above, but the stock for which the dividend is paid is readily tradable on an established securities market in the United States. See Readily tradable stock , later.

    Source: IRS

    That’s why I mentioned sticking to stocks that trade on a US exchange so as to avoid any confusion in regards to the dividends being qualified.

    Cheers!

  25. Justin,

    “Is it enough to just own stock in these companies or should they be within a vehicle of sorts?”

    UK-domiciled stocks that trade on a US exchange (through an ADR or ADS) can be held in a taxable or tax-advantaged account. There are no foreign withholding taxes to tangle with due to the aforementioned tax treaty.

    Canadian stocks are generally subject to a 15% dividend withholding tax by the Canadian government, on top of anything the US will charge. That applies to taxable accounts. This can be avoided by investing in a retirement account, assuming it’s not a Canadian REIT. Otherwise, you’ll pay the 15% before the dividend ever hits your account and you’ll have to claim the credit at tax time.

    Take care!

  26. Nuno,

    That’s too bad that dividend raises are uncommon. I happen to believe (and math proves it out) that that’s kind of the secret ingredient to the success of this strategy. Then again, it’s probably not much of a secret when the word “growth” is right in there. πŸ™‚

    That being said, if you can start out with a high enough yield, the lack of dividend growth might be offset to a large degree. Starting out with 7% yields can certainly put you in a nice spot, where it would take many, many years for a stock with a yield half as large to catch up, even assuming rather generous raises.

    I’ve always said that I would maximize the potential of any situation I’m in. So if I were living over there I would probably aim to maximize my yield while also not sacrificing too much quality. That way I could still hopefully reach my goals. Buying stocks in the 4% yield range with no dividend growth at all might make the climb a bit more difficult. But catching a good number of stocks that yield 7%, assuming the payout is sustainable, probably wouldn’t be too bad.

    Cheers!

  27. Jon,

    “One difference I note is that USA companies are loathed to cut dividends and make much better DG stocks. UK stocks tend to offer a higher yield”

    I’ve found the same to be true. I think that’s why you have a good handful of stocks over here with extremely lengthy dividend dividend growth track records, whereas that’s a lot more difficult to find in the UK. But some of the yields make up for a degree of that.

    Thanks for sharing that. I’m sure FI UK will find some value in that information. πŸ™‚

    Best wishes!

  28. DM – I own UL-N, and as you pointed out no dividend withholding tax, even for your northern neighbors in Canada. However, in June 2014 Unilever instituted an annual fee of $0.02 per PLC ADR share ($0.005 per quarter). According to the company website this is to help offset cost of listing the ADR. Apologies if you or one of your readers mentioned this and i just missed it.
    DiningOnDividends.

  29. Perfect timing Jason! I just bought info two foreign stocks this week, as I bought BP and UL. I was looking to diversify beyond US stocks, so went with BP and UL first. Your article gives some excellent information, as tax implications can be worrisome to investors looking to branch out.

  30. Foreign stocks has been one of my focus in the last weeks as you can see in my recent purchases. I do it for diversification mainly. Thanks for explaining some concepts around implications of buying foreign domiciled stocks.

    An idea for another post : qualified vs unqualified stocks, MLPs etc… myself I try not to buy any MLPs because I don’t understand the tax implications. But it’s really difficult for me to know if a stock is a MLP or not…

    Cheers,
    Fab

  31. I am a fan of foreign stocks but now I have to double check the foreign withholding taxes every time I invest in them. This comes to mind of the stock ADR TOT Total where I pay a 30% withholding tax on dividends which sicken me. All of the sudden the 7% yield gets chopped down to 5% because of it.

  32. I held BMO in my 401k until the first dividend got paid and Merrill Lynch withheld 15%. Right or wrong, the taxes got withheld and there is no way to claim them on your income taxes when it happens inside a tax deferred account.

  33. The foreign tax withholding is definitely a downsize to investing overseas. However, we live in a globalize world now and there are plenty of high quality outside of the United States. At least you can claim the withheld dividends on your tax returns.

  34. I happen to own quite a few foreign names in my taxable and ROTH accounts. As you say, low hanging fruit.” What’s not to love about of these great dividend paying companies that happen to be domiciled outside the U.S. I hold 3 Canadian banks in my ROTH, TD, BNS and RY (no withholding tax there), I own UL in my ROTH as well and in my taxable account I have ALLE, IR and DEO. Happy to be an owner in all 7 of my foreign stocks. Thanks for sharing.

  35. Good introduction DM. I have a lot of foreign stocks, but stick mostly to UK, Canada, and Swiss foreign stocks for their beneficial tax purposes and the great companies available. I just recently added to BBL, BNS, and NSRGY, all great companies and the tax situation for these did not deter me at all.

    I think diversifying into some foreign based multi-national stocks is a good idea, with currency fluctuations offering a different type of variation. Right now, the dollar is very strong and makes for a good environment to pick up some of the large foreign based names cheaper than usual. Other foreign companies in my portfolio include BP, DEO, GSK, RCI, SYT, UL and ZURVY. I like the UK ones the best as there is not much to worry about other than ADR fees, but the payout schedules are a bit lumpy on a lot of these foreign payers. Roughly 25% of my portfolio is foreign based, which allows me to diversify with a large footprint.

    I think if you can get a great company at a good value in one of these countries, the tax considerations will be outweighed by the value you get for the most part. I don’t want too much income from Canadian and Swiss companies to get taxed in the long run, but buying at a good price when the dollar is strong can offset the effect in the short term.

  36. Interesting post. I’m surprised you mentioned NOV, I was recently looking at the foreign stocks in my 401k International fund and I really liked the high growth potential along with nice little dividend yield (kind of like VISA or AAPL). It seemed that you mentioned a handful of companies that you don’t currently have positions in. Maybe you could provide a running watch list of stocks (sort of like your Portfolio page) that you’re watching with few notes of what’s currently holding you back.

    Also I happened to come across the stock Noble Corporation PLC (NE). It seems like an interesting high yield play, but I kept seeing articles where it was considering making a switch to MLP status. I keep reading that MLPs can cause major tax headaches and I’m trying to stay away from any company that is closely related to one, Kinder Morgan comes to mind. Do you have any advice or experience with MLPs as they kind of go with this article’s theme of taxes?

  37. You forgot to add the other reason to look outside US stocks being that they’re pretty expensive right now and some of the foreign blue chip companies could be cheaper than US counterparts. If US stocks were a bargain right now I wouldn’t have much interest in looking elsewhere, but that’s not the case.

    Currently I own UL, BBL and GSK also don’t own but considering ETN for a future buy. I’m a little too paranoid about the Canadian banks because of all the talk about real estate bubble there- they may end up being fine because I don’t think they have the same situation with leverage and derivatives that the U.S. markets had – but I’m going to take a pass on them anyway.

  38. DOD,

    Glad to have you on board as a fellow Unilever shareholder! πŸ™‚

    I did actually mention that fee specific to UL when I discussed the initial stake in the company. I mentioned fees in this article more broadly, as a potential drawback to ADRs in general. It reduces the yield slightly, unfortunately, as it’s a permanent sunk cost.

    Appreciate you stopping by!

    Best regards.

  39. Agent,

    Glad it provided some value for you! BP and UL both offer something to like here, though are very different investments. I hope they work out for both of us. πŸ™‚

    Have a great weekend.

    Cheers.

  40. FabSavings,

    That’s a good suggestion. Maybe I’ll tackle that sometime. I try not go get bogged down in this stuff too often, as there are already a lot of good guides/resources available. However, I can see the value there.

    MLPs are generally easy to decipher as they usually have an L.P. at the end of the partnership’s name. Another way to tell is by simply visiting the investor relations site and doing a little DD. πŸ™‚

    Have a great weekend!

    Take care.

  41. A-G,

    Yeah, seeing your yield cut down on the front end sure takes some of the fun out of it. Hopefully, Canada allows you to reclaim part of that. Not sure how that works up there.

    It’s always a good idea to check all the details of any investment, but especially so in regards to foreign stocks – taxes are just one potential bump in the road.

    Thanks for stopping by.

    Best wishes!

  42. KeithX,

    It looks like that’s somewhat common. In those cases, you have to contact your brokerage and go over some paperwork with them. Not fun, and possibly not worth it. Rather unfortunate that something like that is still going on as the tax change has been in effect for about five years now.

    Thanks for sharing!

    Cheers.

  43. Henry,

    Absolutely. It’s a big world out there. The US stock market is probably a large enough pool for most swimmers, but there are other great pools out there as well. And sticking to UK-domiciled stocks only means you don’t even need to worry about reclaiming any taxes withheld.

    Thanks for dropping by.

    Have a great weekend!

    Cheers.

  44. DivHut,

    Glad you’re enjoying some of that low-hanging fruit. Tastes good, doesn’t it? πŸ™‚

    I hope to join you as a part-owner in DEO at some point.

    Best regards!

  45. Daniel,

    Right. It’s a big world out there, full of great opportunities. Sounds like you’ve scooped up a good portion of them over there. πŸ™‚

    I agree that valuation should be paramount, just like a domestic stock. If the foreign dividend withholding tax is over 15%, that will be something to certainly consider. But it would be tough to pass up the opportunity to own a piece of a high-quality company at an attractive valuation if the only downside is a slight drag on the dividend. That’s definitely a personal call, though.

    Thanks for dropping by!

    Best wishes.

  46. TayDiggsMoney,

    I’ve actually avoided MLPs. It seems like the tax headache might not be that bad, as taxes are mostly handled electronically or via an accountant for most people. However, I’ve preferred the GP in most cases as they offer a great combination of high current yield that’s qualified and the growth is substantially higher. The fact that the taxes are a lot easier definitely makes the decision even easier.

    Maybe I will add a watch list page. There are probably 50 stocks or so that I watch outside of my portfolio, though it’s unlikely that I’ll invest in half of them for a variety of reasons. Though, I do like to keep an eye on some of them. Usually, it’s either valuation, yield, or a combination of both that holds me back, once they pass muster.

    Best regards!

  47. pacer45,

    Good point there. Valuation should be a primary concern, regardless of where a stock is domiciled. I’ve been buying up a combination of US and foreign stocks lately, though a couple of foreign names (UL and BBL) have been a bit more in the mix than usual.

    I hear you on the Canadian real estate market. I worry about that as well. I remember reading quite a bit about it a while ago when I first initiated a position in TD and BNS. It seems that the country is self-aware, and the banks/government point to much higher lending standards, which would hopefully prevent a meltdown like we faced here due to some of the subprime issues. I guess we’ll see how that works out.

    Cheers!

  48. DM,

    Informative article! I suspect you’ll get quite a few bookmarks on it, and rightfully so.

    I personally own BNS, UL, BP and BBL off the top of my head. I recently added to BP and BBL is on my hit list for the next purchase if it continues to remain depressed at these current levels that are below my cost basis.

    When it comes time to buy I don’t tell myself that my portfolio is light on foreign stocks so that’s where I’m headed. Value is value, and I pick what I perceive is the best value at buying time.

    It’s interesting to see how several other commenters are using a variety of tax-sheltered accounts to grow their foreign holdings. I have a few myself by virtue of rollovers from former jobs and an IRA from ages ago, but I’m not actively looking to add to them. Those funds aren’t readily accessible for many more years, and I plan on living off immediately dividends with a little web income on the side much sooner than then πŸ™‚

    Best,
    DWC

  49. I hold all the US stocks in the RRSP account to avoid paying withhold tax. This keeps the math simpler. I think eventually I’ll end up investing US/international stocks in regular accounts but that’s much later when I fully maximize RRSP.

  50. Have to go with foreign stocks as here in Finland we do not have so many high quality companies available. And hardly any DG companies… One man’s homeland is other man’s foreign country ☺ Of course need to play with currencies when byuing as incomes are in euros. But US dividends can be left on US account for next purchase and then there is no nees to pay any currency exchange fees for nothing. Ans I believe that in long run currency rates do not mkake such difference.

    And anyway here in Finland tax rate for dividend incomes is 32%! Can you believe. Makes much harder to achieve financial indepencency here than with 15% rate. Luckily all taxes paid to approach are fully compensated inside this 32%.

  51. Hi!
    This year I need to figure it out how and where do I have to pay my “TAX”? My situation is more complicated. I am Polish citizen who was working in US. That time I started my adventure with Stock Market. So far is clear. Than I came back to Europe and I found a job in Germany where I currently live and pay my taxes. As you guys know Poland is part of EU. To avoid double tax I pay them in Germany cause I live and work here.

    Very good friend of mine was trying to help me with this issue and he asked his accountant. We got that kind of information:

    “I looked at the income tax treaty with Poland. According to Articles 14 (capital gains), 12 (interest), and 11 (dividend) To the extent that your friend had capital transactions from stock (as opposed to real estate) he is not subject to tax in the U,S. and doesn’t need to file.

    It would be different if he were here for more than 183 days. He would also have no tax on interest, but there may be a tax on dividends from a U.S. resident corporation.” – must say I do not own any stock that pays dividends.

    My question is. Should I pay my tax in Poland or Germany. Is here anyone from Germany who has opened an account in US and live in Germany?

    If someone can help me would be thankful. πŸ™‚

  52. DM,

    Here in the near future would it be possible to do an article on how to set-up a portfolio spreadsheet step by step? (similar to what you use for your current portfolio)

  53. There are 3 main differences in the mortgage lending standards between the two countries which might help alleviate your concern. In the US there is a 30 yr fixed rate mortgage, where in Canada the most you can negotiate is a 5 yr rate amortized over 25 yrs. You can also get 1,2,3 & 4 yr rates which gives you better flexibility of your interest payments. In the US loans are attached to the home where as in Canada a loan is attached to the borrower. Finally in the interest on mortgage loans are tax deductible where as they are not in Canada, so Americans see this as an opportunity to possibly borrow more than they need to capture this write off. This is a protective mechanism in Canada for the bank’s sake as well as the consumer. In addition, I should point out, the real estate markets in the States that suffered the worst in the 2008/09 downturn, were primarily sunshine states which relied heavily on tourism, and the state of Michigan which was auto manufacturing intensive.

  54. DivHut,
    Which brokerage account do you hold the Canadian bank stocks?
    It seems Sharebuilder does not understand the rules and are withholding 15% tax on Canadian stocks in an IRA account. I would be interested to know the broker that you use for your Roth.

    Thank you
    HBkid

  55. Hi Jason.

    Unilever has been part of my portfolio for a long time now. I also own BHP Billiton and many other geographically diversified companies. I’ve always believed in international exposure (currencies). Congrats on your portfolio. I wont get more than 30 stocks for several reasons but i do admit yours is amazing. My stocks are these:

    http://www.dividendogma.com/cartera-de-valores/

  56. DWC,

    “When it comes time to buy I don’t tell myself that my portfolio is light on foreign stocks so that’s where I’m headed. Value is value, and I pick what I perceive is the best value at buying time.”

    Exactly. Same here. Value is value, and quality is quality. That’s regardless of where a stock might be domiciled.

    I’m with you on BBL. I didn’t plan on having a large stake in the company, as it’s a commodity play. However, I may add some in December if it stays at these levels. We shall see!

    Thanks for dropping by. Have a great weekend.

    Cheers!

  57. Great Post.
    What are your thoughts on Seadrill (SDRL) ,especially when it is on sale.Are you planning to buy it in near future.
    Thanks

  58. Petteri,

    I’m with you on the currency fluctuations. It all probably evens out over the long run, or comes close to it. I don’t really worry about that stuff.

    It’s unfortunate about that dividend tax. I’d definitely try to find a way to maximize the potential of any situation I might find myself in, but it sounds like you’re already doing that. πŸ™‚

    Have a great weekend!

    Best wishes.

  59. Walde,

    That’s a tough question. I’d probably have to do a lot of research to really give you any kind of answer I’d be comfortable with. I hope someone who might be in a similar situation may have some more information for you. If not, I may research this if I have some time this weekend.

    Cheers!

  60. Brittney,

    I’ll see if I can put something together, though my spreadsheet isn’t fancy or anything. There are no formulas or anything else involved. I simply set up a Google Drive spreadsheet and entered in the amounts. πŸ™‚

    Thanks for the suggestion! If there’s some value there, I’ll be happy to share.

    Take care!

  61. Brian,

    Thanks for the information there. That jives with some of the info I’ve come across. If I’m not mistaken, credit, LTV, and debt/income standards are also higher up in Canada.

    I wonder if we’ll do away with the mortgage interest deduction as well at some point.

    Cheers!

  62. Wealth Builder,

    I have no intentions on buying SDRL. The fundamentals are extremely poor, especially from a cash flow perspective. And the company is highly indebted. It seems like a very poor investment. As always, I’d rather buy a wonderful business at a fair price than a fair (or even worse in this case) business at a wonderful price.

    I’d recommend checking out the free cash flow metrics.

    Best wishes!

  63. Jose,

    I’m glad to be a fellow shareholder with you. UL and BHP Billiton both seem like fantastic companies to me. And I’m willing to bet we’ll both be collecting significantly more dividend income a decade from now. πŸ™‚

    Nothing wrong with 30 stocks. For many, that’s more than enough. The way things are going for me, I’ll probably end up with a lot more than 50. Luckily, it doesn’t really take nearly as much time as one might think to manage all of that.

    Thanks for dropping by. Have a great weekend!

    Cheers.

  64. Thanks,
    but I will tell you right away. People from “Fidelity” could not give me a answer telling me that they are not an institution that do that kind of work. Refer to my friends accountant I don’t have to pay taxes in the U.S. Some people could think. “This guy has been lucky” Everyone of us would do everything to not pay them. But for sure I must pay it somewhere else. If I’m gonna find out and I’ll let you guys know.

  65. Living in the old World I have begun diversiying into the NYSE the last couple of years. So far it has mostly been a good move despite some misses. Right now the US stocks valuations seems a bit hefty to me. I’ll probbly look at Canada next time I get extra $ to invest. From my point of view the rising (US) dollar has been boosting the US stocks and dividends this year. The currency trensds are always hard to predict but they sure add extra uncertainty. Right now it seems like the greenback is trending upwards.

  66. I love the convenience that ADRs provide, they are one of the wonders of our modern day world. BP is the only ADR that I own, so I’ve hardly given the subject much thought (also because my tax accountant usually crunches these things for me).

    Thanks for the article. As you say, you could spend pages and pages detailing the complexity of foreign taxation, but the article gives the essential gist of the subject.

  67. Great post Jason on foreign companies. I myself hold several of those: GSK, BP, NSRGY, ABT, recently added RDS.B and considering to add UL, TD, SDRL, BBL, and VOD in my watch list.

    I certainly consider above foreign companies as low hanging fruits at eye contact level πŸ™‚ Cheers.

  68. Hi Jon,

    I’m a fellow Brit (but based in Doha) and am relatively new to DG stocks. I’ve taken the plunge this month on BP and Unilever. I bought Wells Fargo last month.

    Like you I have a preference for US DG stocks over British DG stocks. However, am I right in understanding that there is a tax rate of 30% on dividends paid out by U.S. companies?

    BTW, Jason, thank you for your fantastic blog! As a newbie to the world of stocks it has provided me with a wealth of great information.

    Best wishes!

  69. I hope so, because the only person who is guaranteed to win by the consumer borrowing beyond their means for a mortgage is the mortgage broker, who is paid on commission. I saw a piece on 60 Minutes prior to the crisis where people in some states, with no job or savings, were taking out mortgages to buy large homes and rolling auto loans and their credit card debt into one big mortgage. They knew that if things went bad they could walk away from the house, because the mortgage is attached to the house. Now what could go wrong there? In Canada, you would have zero chance of getting that loan, and even if you walked away, the loan stays with the person.

  70. I had bought SDRL some time ago and didn’t even realize it is in Bermuda (Showed as common stock). Looked on a map and boy is that way out in the middle of the Atlantic. Learned 2 things. Thanks.

  71. DM, I invest in London based corps to avoid double taxation. My biggest problem is selling stocks. Will london take 15% of my sale and then give me the rest or will I have to file London taxes, etc. That’s the biggest problem I have and nobody has been able to answer that question

  72. Felix,

    Right. The dollar is trending upward since the summer, but who’s to say if/when it reverts. Like the stock market, it’s just impossible to time that kind of stuff.

    I hear you there on Canada. There’s some reasonable stocks up that way. It’s a somewhat limited market, relative to the US, but there are still some solid opportunities, especially in banking, media, and energy.

    Hope you’re having a great weekend!

    Best wishes.

  73. Spoonman,

    I’m with you on BP. I’ve honestly been thinking about adding to BP here, but it’s a high-risk play. Like ARCP, I try to limit my exposure to stocks that I perceive to be much higher than average in terms of risk.

    Glad the gist came across okay on this one. It certainly wasn’t comprehensive, but I think most US-based investors will find some value here. πŸ™‚

    I hope you’re having a great weekend, but I guess “weekends” aren’t what they used to be for you guys!

    Cheers.

  74. PIM,

    All great names there. NSRGY is one of the few foreign stocks that don’t yet own but want to. DEO and maybe a couple of others are in the mix as well.

    Appreciate you stopping by. Keep plucking that low-handing fruit! πŸ™‚

    Take care.

  75. Roy,

    Glad you found the blog. Appreciate the kind words very much. I’m doing my best to put out useful, inspiring, valuable, and interesting content as often as possible. I’m also freelance writing quite a bit as well right now, so it’s difficult to do more than three articles per week. But I’m doing my best. πŸ™‚

    As far as your question goes, my understanding is that the US charges a 30% dividend tax to investors from outside the US. This is often reduced to 15% (or uncommonly 0% in certain circumstances like with Canadian RRSPs) if there is a tax treaty between the US and the country in question. Since we have a tax treaty with the UK, I assume that your dividend tax withholding by the US government will be reduced to 15%. However, I’m unsure of that exactly because I don’t live in the UK and am not real familiar with your taxation over there.

    I would start with the IRS, which will ultimately have the answers. It could require a lot of digging, though:

    http://www.irs.gov/Businesses/U.S.-Tax-Withholding-on-Payments-to-Foreign-Persons

    Perhaps someone else from the UK can answer this. I know FI UK above is from the UK, and he might have a better answer for you. πŸ™‚

    I hope that helps!

    Best regards.

  76. DFG,

    Yeah, that’s an interesting fact about SDRL that others might not be familiar with. Not that you have to know that, because you’re not paying any foreign withholding tax, and the stock trades normally.

    Bermuda is interesting in that it sits pretty far north, yet has a fairly nice climate. I hear it’s incredibly expensive, though.

    Thanks for dropping by!

    Cheers.

  77. Jack,

    As far as I understand it, UL (and other UK-domiciled stocks) have no special capital gains taxes in excess of what the US will charge. So the 0% tax goes beyond dividends to capital gains as well. That’s what I understand it to be. I’ve never heard of any capital gains taxes charged by the UK government on the sale of ADRs.

    I hope that helps!

    Best wishes.

  78. This may be my new favorite site! Taxation is biggest down side of dividend investing and can be very intimidating. Btw I am a very big fan of nestle, can’t seem to come up with too many reasons not to pull the trigger. Can u? Sorry to stray off topic. Thanks

  79. Pat,

    Thanks! I’m glad you like some of the content thus far. πŸ™‚

    I like NSRGY. As always, my capital is limited. But I hope to initiate a position at some point here. Not much to dislike with that company.

    Thanks for dropping by! Hope you’re having a great weekend.

    Best regards.

  80. Tough topic to cover given how many angles it can go and how unique everyone’s situation tends to be.

    As a Canadian, I try to focus on domestic companies and get my multinational exposure through U.S. equities. Given, as you mentioned, that KO, JNJ, and others have global interests, at this time I am content sticking to Canadian and U.S. equities.

    Take care!
    – Ryan from GRB

  81. Nice post Jason. Taxes can be a real pain. So It’s indeed best to be well informed about it upfront. This can save you a lot of disappointment later. One small correction you might want to do is that the Swiss withholding tax is 35% iso 15%.

    Cheers.

  82. I have my Canadian banks in a Sharebuilder ROTH account and do not have any dividend tax withheld. Not sure why you see that in your portfolio.

  83. Jason,

    Great article! I believe there’s no reason to not consider foreign stocks.

    Since Belgium is so small, I automatically am forced to look at foreign companies. Different taxes and currencies are a hassle sometimes, but also keep things interesting. I kinda like researching the taxation treaties and different listings of companies like Unilever and Royal Dutch Shell.

    UK stocks are almost always OK since there aren’t any withholding taxes. France, Switzerland and Germany are a completely different story though.

    I’m glad you mentioned NestlΓ© and Novartis, btw. Excellent dividend growers!

    Best wishes,
    NMW

  84. Yes, in Sweden we get a 15% withholding tax on US dividends. However we get this money back next year when filing our tax report, because they want to eliminate double taxation (we still have to pay swedish taxes on the dividends as well).

  85. Hey Jason, nice article, you may also want to look into Australian stocks, i haven’t done myself but i believe franked dividends get a similar tax treatment. There are some very large companies there that pay good dividends. I was also starting to look more into hong kong stocks especially with the opening up of the communications to the shanghai exchange stuff mentioned the other day, it will only get bigger and more accessible over time.

    cheers
    T

  86. Hi Jason, thank you for writing this article — it helped clarify things for me!

    On Canadian domiciled stocks, say for example one is a US resident in the 15% marginal tax bracket. It seems then the effective withholding is 12.75% after you take into account the value of the tax credit. Of course any tax sucks, but a 12.75% haircut isn’t too bad given some of the nice mid to high 3% yields on those Canadian bank stocks you own!

    The currency markets are definitely difficult/impossible to time, but many people think there could be more USD strength to come. US interest rates are still at historic lows and eventually will probably have to go up. When US interest rates finally do go up, one would think the dollar will run up some more. Of course there are a lot of ‘probablies’ and ‘eventualies’ in there, but I think this situation creates a good continued opportunity for investing abroad. Needless to say the GBP (which is associated with the ‘best’ ADRs domeciled in Great Britian) beats to its own drummer a bit, but I think the same principle basically holds true.

    Best-Tim

  87. GRB,

    Absolutely. We’re lucky in that there is a plethora of globally diversified companies available right here in the US and Canada. International exposure is basically automatic when you’re investing in companies like Johnson & Johnson, Coke, Philip Morris International, etc. Makes it easy for us. πŸ™‚

    Thanks for dropping by!

    Cheers.

  88. Jos,

    “Swiss withholding tax is 35% iso 15%.”

    NSRGY is 15%:

    “The ADR dividend is paid on average one month after the dividend on the ordinary share. Most ADR holders are US residents and are entitled to a favorable withholding tax rate. After the payment of the dividend on the ordinary share, there is an extensive process between Citibank (NestlΓ©’s ADR depositary bank) and the Swiss Tax Authorities that enables these US residents to benefit from a favorable 15% withholding tax rate. This results in the delayed payment of the dividend to ADR holders.”

    http://www.nestle.com/investors/faqs/adrs-faqs#who

    I hope that helps!

    Cheers.

  89. NMW,

    I can imagine taxes and currency exchange rates can be a headache for you. But you definitely end up being a very informed investor, after doing all the necessary research. πŸ™‚

    What do you end up paying in foreign withholding dividend tax to the US on your US dividends? Is it 15%? Do you get any of that back? I’m not sure how that works for you in Belgium there.

    Thanks for stopping by!

    Best regards.

  90. Patrik,

    That’s fantastic there. I imagine that’s how it works for a lot of countries out there. Very similar to how it works for us over here in the US.

    Thanks for sharing. I’m always interested to know how that works for investors in other countries. πŸ™‚

    Cheers!

  91. Tales,

    If I’m not mistaken, I thought Australia’s withholding was well above 15%. I probably won’t end up looking into Australian stocks, though I do own shares in UK-listed BHP Billiton through its ADR. I already have 51 stocks in the portfolio, and I find Canada and the UK as pretty low-hanging fruit for my international needs. Just doesn’t seem to be a need there, but it might be fertile ground for others. πŸ™‚

    Thanks for dropping by!

    Take care.

  92. Tim,

    With Canadian stocks, the only real cost is opportunity cost. That’s the delay in getting all of your money to you. But the tax credit makes it so that the foreign dividend tax withholding is 0% in a taxable account. In a retirement account, there’s no foreign withholding or opportunity cost at all, as mentioned in the article.

    I don’t worry about currency fluctuations at all. Same goes for interest rates, for the most part. I’ve been hearing about rising interest rates for three years now. If I worried about that kind of stuff I’d probably never invest. πŸ™‚

    Cheers!

  93. Good and informative post! Here’s a another foreign perspective – In Sweden we can buy most US dividend stocks without paying too hefty commissions. 15% of the tax is deducted when the dividend is paid, which we get back in connection to our tax returns.

    In Sweden we don’t have the any companies that can compare with the likes of KO or JNJ and the other dividend aristocrats, when it comes to consecutive dividend raises, but our stable dividend companies have a higher starting yield in most cases. There are two Swedish companies that I know of that has raised dividends for 17 years in a row and that’s two real estate companies, one of which I own – Castellum that currently has a dividend yield of 3.8%.

    /Best Regards

  94. Is there a basic form of Google spreadsheet you plugged the numbers in? I set up a portfolio on Google finance and it is ok, but it would be nice to have a comprehensive portfolio/spreadsheet that shows current dividend, annual income, current yield, dividend distribution date, etc

  95. LTI,

    Great info there. That jives with what a lot of other investors outside the US seem to experience – a reduced dividend tax, and then a credit in your home country to make it mostly a non-issue. Makes investing in the US a lot more attractive, and also makes it very easy to diversify. That’s a win-win. πŸ™‚

    Thanks for sharing!

    Cheers.

  96. ed69,

    There’s no basic form or anything I use. Mine’s just a simple spreadsheet with information manually added in. There’s a lot of really cool spreadsheets that I see other investors/bloggers use, but I’m no spreadsheet wizard. Frankly, neither do I want to be. Just not an interest of mine. But it’s nice to track some of the basic information, and see the portfolio all in one spot. I’ve seen a lot of formulas out there so that your spreadsheet updates in real time (using current prices), but I don’t see a need for that. I’m investing for the next 30 or 40 years, so trying to make sure the value is updated every single day just isn’t real important.

    But there’s some formulas out there as well that pull info from Google, which will not only pull real-time prices, but also dividends, which can be extrapolated out to give you an idea of your annual income. However, sometimes the dividend information is incorrect, especially with some of the ADRs out there that pay semi-annually, like Vodafone.

    Cheers!

  97. Tales,

    Good point there. I forgot about all about the franking of dividends. Of course, worrying about which dividends are fully frank is exactly one of the reasons I don’t invest over there. Just another headache that, in my opinion, is easy to avoid.

    It might be worth it to others, but BHP Billiton is a great example. Available as BBL with the full dividend. The BHP shares, last I knew, were not fully franked, so there’s a drag there. I’d just prefer to avoid Australia altogether since there are probably a couple of hundred great stocks to choose from between the US, UK, and Canada. But that’s just me. Australia might make sense for others.

    Cheers!

  98. Here’s a brief overview of Belgium:

    For US stocks the withholding tax is 15%, the Belgian government then takes another 25% of the dividend so in total 36.25% of US dividends are taxed away. None of this can be recovered. Unfortunately, withholding taxes for other countries are even worse for us, France is 30% and Switzerland a whopping 35%. AFAIK foreign withholding tax above 15% can be recovered but it’s a bureaucratic nightmare to do so.

    When buying and selling shares, you pay a tax of 0.25%.

    No capital gains tax (but the socialists are screaming pretty hard to introduce this).

  99. Being Canadian, I view American stocks in the same manner. For our registered accounts we do not have to pay withholding tax on foreign equities, but for non-registered accounts we do. I try to focus on foreign investments in my registered account for this reason. Canadian dividends from Canadian companies get favourable tax treatment up here so they are a favourite for non-registered accounts. We also have a TFSA (tax free savings account) that allows us to earn income totally tax free but the catch is that there is an annual contribution limit of $5,500 per year. Since its only been around a few years most people have a max of around $30k in there (if they even have a TFSA account).

    You mentioned BNS and TD; I own both and will hold for the long term. I love Canadian banks and I started liking them even more when they all maintained their dividends during the financial crisis of 2008/09.

  100. ThomasDV,

    Wow, that’s unfortunate. So the biggest chunk of taxes comes from your own government. I suppose we’re lucky over here in that our dividends are taxed at pretty advantageous rates. Although, those rates are advantageous in comparison to tax on earned income. So I’m not sure how earned income is taxed over there, and perhaps dividends are taxed at better rates? Either way, that’s not fun!

    Thanks for sharing. πŸ™‚

    Cheers.

  101. Dan,

    It’s great that the Canadian and US governments have been able to find some common ground and allow cross-border investing to be relatively easy for us. I think it benefits everyone involved. I personally don’t care for paying the 15% upfront, and then having to wait for my income later down the road. But it’s a relatively minor inconvenience, all things considered. Definitely a first world problem. πŸ™‚

    Glad to be a fellow BNS and TD shareholder!

    Thanks for dropping by.

    Cheers.

  102. Jason,

    ThomasDV’s analysis is 100% correct!

    Even though 25% tax on dividends sounds like a lot, it’s much lower than income taxes (from labour) over here. Furthermore there’s no capital gains tax. You win some, you lose some, I guess.

    Also, I don’t mind the taxes too much if that means I get to enjoy one of the best social security and healtcare systems in the entire world.

    Cheers,
    NMW

  103. Hello Dividendmantra!

    What would the withhold tax be if a foreign investor that buys the Unilever (UN) ADR ?
    As a foreign investor (Sweden) i use to pay a withhold tax of 15% on American stocks and 15% on stocks in Netherlands. What about if i buy the Unilever (UN) ADR, i guess Netherlands withhold 15% but does America do the same on ADRs? That would mean i would pay a total withhold tax of 30%?

    I understand if you cannot give me an answer on this question. Perhaps some of your other foreign readers could answer?

  104. Alice N,

    I don’t understand your question. It seems to me that you pay 15% foreign withholding taxes, but you get that back as part of a tax credit. I’m not from Sweden, so I’m not familiar with your tax laws. However, another reader from Sweden, Patrik, stated:

    “Yes, in Sweden we get a 15% withholding tax on US dividends. However we get this money back next year when filing our tax report, because they want to eliminate double taxation (we still have to pay swedish taxes on the dividends as well).”

    So you should be able to enjoy the full dividend of any US stocks you own. The same would then work with any stocks from the Netherlands, I assume, since you are collecting your credit back from the Swedish government.

    I hope that helps!

    Cheers.

  105. Thanks for the response Jason… I’m not sure I totally understand the US tax treatment for Canadian dividends in a taxable account. Your article made it sound like there were some limitations on how much of the credit you can take (“…there are some limitations there. The credit you can claim is the lesser of the foreign dividend tax paid or the amount of the US tax liability on that income”). So I thought there was a possibility the credit could be limited depending on what tax bracket you are in.

    Anyway, I get it that you are not a tax advisor and don’t want to waste your time! I am very thankful for the information and ideas you post here. I think I will just buy a small chunk of BNS, TD or RY and see how the dividends flow through my tax return. Unfortunately I think all these Canadian bank stocks have gone ex-dividend for 2014, so I’ll have to do the test next year!

  106. Tim,

    Right. So there is a limit there, but it probably won’t apply to Canadian stocks. And that’s because the 15% foreign withholding is the same as what the US would withhold for most people. If you find yourself owing 0% dividend tax (15% tax bracket or lower) to the US government, then it’s a sunk cost if you’re over $300.

    I think this link should probably explain it nicely for you:

    http://www.schwab.com/public/schwab/nn/articles/Claiming-Foreign-Taxes-Credit-or-Deduction

    The IRS link I included in the article also spells it out:

    http://www.irs.gov/taxtopics/tc856.html

    As far as I understand, this limitation only applies to those that cross over the $300/year threshold where Form 1116 has to be filled out. Still an opportunity cost no matter how you slice it, but at least investing in Canadian stocks allows most people to eventually get all of their money back. I’m purposely trying to stay under $300/year so that I won’t have to worry about this.

    I hope that clears that up for you.

    Cheers!

  107. Hey thanks for article on foreign tax –

    Just wanted to drop in real quick and get your opinion on SCL. 46 years of dividend growth, the growth has been very healthy, and the current valuation is alarmingly good. Have you looked at this one before?

  108. took2summit,

    Hmm, never really took a look at it before. Just browsed over the financials, and I’m not sure. The yield is awfully low, but the dividend growth rate isn’t all that impressive for such a low yield. I’d prefer to see a dividend growth rate in the lower or upper double digits for a yield of 1.65%. David Fish’s CCC list has their 10-year DGR at 5.5%. Not impressive.

    Net margin is also very low. And the company has routinely recorded negative FCF over the last decade.

    Could be a great investment, but a few red flags for me.

    Wish you the best of luck if you invest there. πŸ™‚

    Cheers!

  109. Jason, thanks a ton for the response — I get it now. The Schwab article was good. Makes a lot of sense to try and keep it under $300 to avoid filing Form 1116! Cross the “1116 bridge” when the portfolio gets there;-) Unfortunately I can’t avail of the 0% dividend tax, so the “sunk cost” problem doesn’t pertain to me.

    Have a great day, and thanks again for sharing!

    Tim

  110. Singapore and Hong Kong have no dividend withholding tax…BUT…the dividends are taxed as non-qualified distribution which do not get the 15% dividend tax treatment in the US. Therefore, they would best be held in a tax sheltered account. Some to consider here are SingTel (SGAPY), DBSDY (DBS Bank), and JMHLY (Jardine Matheson) – all very large companies

    Another one to consider is Novo Nordisk (NYSE:NVO) based in Denmark (a qualified dividend country). They are the world leaders in diabetic care and insulin production. When it comes to big pharma, NVO is one of the bluest of the blue.

  111. Chris,

    Thanks for sharing the information there. Appreciate it! πŸ™‚

    Novo Nordisk seems like a really solid company. Has huge exposure to diabetes, from what I understand about them. I’m actually looking for another potential name in healthcare, so that might fit the bill. However, just doing a real quick check on this stock looks like it comes with a foreign withholding tax of 28% from Denmark. That’s the kind of stock that definitely isn’t “low-hanging fruit”, in my view, which means I’ll probably have to take a pass. Seems like a great company, but the sea of great companies between the US, UK, and Canada is already more than big enough for this fish.

    Thanks for stopping by!

    Best wishes.

  112. http://www.novonordisk.com/investors/shareholder_services/dividend_payment.asp

    Denmark has a deal in place with the US similar to Switzerland. A tax treaty in place limits the withholding to 15%.

    Anyways, another healthcare name worth looking at for dividend growth is Amgen (AMGN). Being a biotech, it’s a bit different from traditional pharma, but it has been a free cash flow machine. The dividend is a low, but the board just announced a 30% increase starting in Q1 of 2015.

  113. Chris,

    It doesn’t sound like the tax is 15% automatically there from Norvo. It sounds like you can apply for a refund for the 13%:

    “Shareholders will receive their dividends denominated in DKK less the statutory 28% deduction of Danish tax. However, Novo Nordisk ADR holders, residents in the US or Canada, who hold their ADR through their Bank or Broker, will receive their dividend payment from their usual intermediary, denominated in USD less the required withholding of Danish tax rate. For entitlement to the 13% tax refund, as per the Danish-US treaty, benefical holders should get in touch with their usual intermediary.”

    Going through an intermediary for a refund of the 13% withholding on top of the usual 15% is the kind of headache I’m specifically attempting to avoid. πŸ™‚

    Best wishes.

  114. I couldn’t go through 126 comments, but I recently thought about this and couldn’t find a list like the Dividend Aristocrats or Dividend Champions to start my research. Do you know of any? I found indexes but couldn’t find all of the members that comprised of the index (or etf following the index).

  115. The other trick Canadians have is an incredible account called the TFSA. Anything you earn is tax free, and you are tax free when you withdraw it. There are some rules regarding re-contributing in the same calendar year however. Also, it looks like US dividends come in with a 15% withholding tax if you file a W8-BEN. So it isn’t all rainbows and sunshine.

    I’ve had a tough time with US stocks because of this. Do I hold them in the RRSP with no withholding tax, but eventually pay tax when I take money out. Or, do I suffer the withholding tax loss and enjoy the ability to withdraw dividend income with no tax hit. I am torn, so I’m focusing on foreign stocks with no withholding taxes for now (like UL, for example) and Canadian DG stocks.

  116. Steve,

    I’m not real familiar with the TFSA and other Canadian accounts, but I’ve heard good things about it. I find myself not real concerned about taxes in general. I’m kind of Warren Buffett’s side in that I view taxes as not really all that burdensome on the whole. Besides, I’d rather have a tax problem than a revenue problem. πŸ™‚

    Your question there at the end is similar to the question US investors ask themselves about holding stocks in a Roth here in the US (pay taxes now, but withdraw tax-free later) versus holding stocks in a traditional IRA or similar account (pay no taxes now, but pay taxes when withdrawing later). A lot of the evidence going either way seems to really hinge on what tax bracket you think you’ll find yourself in later down the road. If you think you’re going to be making a lot of money down the road, then it might make sense to maximize your exposure to tax-free withdrawals. That said, it makes the most sense to maximize everything, really. If you can max out all of your accounts, you’ll be sitting pretty no matter what the tax situation is like. Overall, I find taxes to be a really small problem if you’re saving a good chunk of your income and investing appropriately. That’s especially true if you’re going to be living off of your investment income early in life and living fairly modestly.

    Cheers!

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