One gentleman recently wrote to me with a question that may interest many Globe Investor readers. He asked, "Can you please tell me what stocks listed on the Toronto Stock Exchange pay dividends in U.S. dollars?"
This question is very timely. As winter approaches, many people – so-called "snowbirds" – will soon head to warm destinations with longer daylight hours south of the border to escape the bitterly cold and dark days of the season.
States such as Florida, Texas, California, Arizona or Hawaii will become homes for many Canadians during the upcoming months.
Consequently, the U.S. dollar will gain importance given it will be the currency required for daily transactions.
For other investors, a focus on the U.S. dollar is a strategic investment decision. The greenback may experience strength with the U.S. Federal Open Market Committee expected to raise the target range for the Federal funds rate by a quarter percentage point on Dec. 14.
Fed funds futures contracts suggest there is a 76-per-cent chance of a rate hike announced next month.
Conversely, the Bank of Canada is not anticipated to raise its target for the overnight rate during all of 2017. As such, income investors may prefer receiving dividends and distributions denominated in U.S. dollars.
To answer the reader's question, I did a screen on our Bloomberg terminal, looking at securities held either within the S&P/TSX composite index or within the S&P/TSX SmallCap index that paid dividends or distributions in U.S. dollars. There were 39 companies identified, with the complete list provided below.
I decided to go one step further, narrowing the list to companies that have announced increases to their payouts during 2016. There were 15 companies that met this criteria, which are highlighted in the table below.
One company especially worthy of note: Restaurant Brands International Inc. has announced four dividend increases in 2016, raising it by a penny a share each time.
On the flip side, several companies have trimmed their dividends such as Encana Corp., Pan American Silver Corp., Yamana Gold Inc., and Potash Corp.
Some readers may wonder why Canadian-listed companies often elect to pay their dividends or distributions in U.S. dollars. It can make sense when the majority of a company's revenues are denominated in U.S. dollars. This way, a company's cash flows will match the dividend or distribution payouts. In addition, it can allow a company to avoid employing currency hedging strategies. Earlier this year, American Hotel Income Properties REIT LP, for instance, converted their cash distribution to U.S. dollars from Canadian dollars for these reasons.
Investors should verify the dividend or distribution polices for each company, and also with their financial institutions where their portfolios are held because firms may convert the dividends or distributions to Canadian dollars.
Encana, for instance, declares its dividends in U.S. dollars, but notes on its website that, "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."
As always, I strongly encourage readers to consult a financial adviser, consider potential tax implications, and to do their own proper due diligence before taking any investment action.