Canadian Stocks that pay US dividends (2021 Update)

To the surprise of many Canadian investors, there is a good number of companies that actually pay their dividends in US dollars. For this screener, we provide an updated list of Canadian companies that are listed in Canada but pay US dollar dividends. So why some Canadian companies pay US dividends and how can investors take advantage of this anomaly? Who are these companies and what are the implications of receiving dividends in USD? We discuss these points below.

Why would a Canadian company pay a USD dividend?

One of the main reasons a Canadian company would pay a US dividend simply comes down to the fact that a significant portion of their revenues and operations are in US dollars, making it much easier for them to pay US dividends, rather than converting to CAD or having a costly hedging mechanism in place to make it happen every quarter. Logistically this makes sense, as it would be inefficient for a company to convert USD to CAD for the sole purpose of paying dividends to shareholders. 

What’s the benefit of receiving US dividends from Canadian companies?

An obvious advantage of receiving US dividends from Canadian companies is that it Is an easy way to earn USD without exchanging any CAD. This is a unique perk because you are buying Canadian listed companies in CAD, and receiving USD in the form of dividends. Investors can then accumulate these US dividends in the USD portion of their brokerage account and use them for reinvesting in US stocks, converting to CAD when rates are favorable or even as a reserve for expenses for trips to south of the border.

Ask Your Broker

It is also important to advise your discount brokerage that you wish to receive dividends from select companies in US dollars. If your broker allows this (which they normally should), they will journal over future US dividends into your USD ‘compartment’ of your brokerage account.

Will I get charged withholding tax for receiving US dividends? 

Fortunately, Canadians get a break on this one: US dollar dividends from Canadian companies are treated as Canadian dividend and not as foreign dividends. This makes sense because a US dividend does not make a Canadian company not Canadian. However, this does not mean dividends will not be taxed! The CRA will simply convert the value of those US dollars into Canadian dollars for calculating your income, so this should be kept in mind when calculating your total dividend income. 

More common than you might think

Although Canadian stocks that pay US dividends sound like a ‘rare breed’ of equities, you might be surprised at how familiar most of these companies are. In the list below, we can even see some 5i Research coverage companies such as, Agnico Eagle Mines Ltd (AEM), Barrick Gold Corp (ABX), Wheaton Precious Metals Corp (WPM), Algonquin Power & Utilities Corp (AQN), Open Text Corp (OTEX) and Magna International Inc. (MG), which have seen 5-year dividend growth rates of 24.3%, 17.2%, 16%, 14.3%, and 12.7% respectively. While it does not have enough data for a five-year history, Nutrien Ltd (NTR) is also worth noting with a solid three-year dividend growth rate of 66%. Other names familiar to investors are Brookfield Asset Management Inc. (BAM.A) and Constellation Software (CSU), one of our favourite growth names which pay a dividend, albeit a tiny one.

Readers may also note some additions to the list, particularly Brookfield Infrastructure Corp (BIPC) and Brookfield Renewable Energy Corp (BEPC), which are newly-listed (in 2020), economic equivalent versions of the limited partnership shares BIP.UN and BEP.UN. Both versions pay US dollar dividends/distributions, but it is worth noting that the corporate versions (BEPC and BIPC) are eligible for dividend tax credits whereas the limited partnership (LP) versions are not. The LP version may also charge withholding tax on distributions. There are some trade-offs here with the LP versions paying higher yields and the corporate versions being more tax efficient. Of course, much depends on one’s tax situation and the benefit from the dividend tax credit, but we generally think owning BIPC and BEPC in non-registered accounts makes sense due to the tax credit.

A clue for a stronger recovery

Although, we do not think it should be the main criterion for determining your investment in a company, knowing that a Canadian company pays US dividends can also indicate the geographic reach a company has, particularly in the United States as paying US dividends often implies that a company is generating healthy free cash flows in the form of  US dollars. Depending on the company/industry, companies with higher exposure to the US may also provide these companies with an advantage over their Canadian peers that derive the majority of their revenues from Canada as we continue to see more robust growth coming out of the US economy coming out of the pandemic.