I wish to buy Canadian stocks for my non-registered account with U.S. dollars withdrawn from my registered retirement income fund in order to take advantage of the dividend tax credit. I would also like to avoid paying the currency conversion costs of switching my U.S. dollars to Canadian dollars. Are dividends of Canadian companies purchased on a U.S. exchange with U.S. dollars eligible for the dividend tax credit?
Scores of Canadian companies – including banks, railroads, pipelines, telecoms, insurers and utilities – are interlisted on a U.S. exchange such as the NYSE or Nasdaq. If the company’s dividends are eligible for the enhanced dividend tax credit, it doesn’t matter where you purchase its shares, in Canada or the U.S., as you’ll get the DTC either way.
If you aren’t sure whether a company’s dividends qualify for the DTC, read its latest dividend announcement. It will specify if the payment is an “eligible dividend” for tax purposes.
Assuming you already have U.S. cash on hand, buying Canadian shares in U.S. dollars on a U.S. exchange can save you money because you’ll avoid the spread of 1 to 2 per cent that brokers typically pocket by converting your U.S. funds to Canadian dollars at exchange rates that are favourable to them.
If you wish, you can then ask your broker to “journal” the shares to the Canadian side of your account so the dividends will be received in Canadian dollars. If you leave the shares on the U.S. side, your dividends will usually be paid in U.S. dollars. That’s how it works at my discount broker, but you should verify this with your own broker.
Just to be clear, if you don’t already have U.S. dollars to invest, there is no advantage to purchasing Canadian stocks on a U.S. exchange. You’ll just pay unnecessary currency conversion costs. In such cases, you would be better off buying the shares on a Canadian exchange.
I am a long-time holder of Telus Corp. (T) shares. Because of the company’s steady performance and growing dividends, I have considered investing in its subsidiary, Telus International Inc. (TIXT), but I can’t find any public statement or analysis that gives any hint as to whether TIXT is expected to pay dividends or not. Can you help?
When Telus International was spun out as a separate company in February, the prospectus for its initial public offering stated that paying dividends was not a priority. The company – which provides clients with a range of digital services such as app development, chat bots and social-media monitoring – plans to reinvest its cash internally for now.
“We currently intend to retain all available funds … to support operations and to finance the growth and development of our business. As such, we do not intend to declare or pay cash dividends on our subordinate voting shares in the foreseeable future,” the prospectus said.
“Any future determination to pay dividends will be made at the discretion of our board … and will depend upon, among other factors, our financial performance, financial condition including leverage levels, contractual restrictions, capital requirements and merger and acquisition opportunities.”
The company added that its ability to pay dividends is “currently limited by the terms of our credit agreement.”
In other words, don’t hold your breath for a dividend from Telus International. But don’t necessarily avoid it on that basis, either, as the company has a long runway for growth. Keep in mind, too, that Telus maintained a 55-per-cent economic interest in Telus International after the IPO. So, as a Telus shareholder, you already have some exposure to Telus International.
You can find Telus International’s IPO prospectus on Sedar.com, the System for Electronic Document Analysis and Retrieval, which is the official website for Canadian public company documents. The site can be a bit finicky at first, but it is a great resource for researching Canadian stocks.
Can you tell me which stock you are buying next for your model portfolio?
Sorry, if I told you that, I’d have to kill you. Seriously, when I decide to make a purchase in my model portfolio, you will hear about it in my column. It wouldn’t be fair to disclose that information to anyone in advance (except to the outside accountant who monitors all of my trades and maintains the spreadsheet for my model portfolio at tgam.ca/dividendportfolio).
E-mail your questions to jheinzl@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.
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John Heinzl