Brookfield Pays US Dividends (But Not for Canadians!)

When my discount broker Scotia iTrade finally added registered US accounts to their repertoire of  offerings, I looked to see which of my stocks I could/should move over the US side of my RRIFs and TFSAs.  The goal was to receive US cash directly from the companies that paid US dividends without incurring any currency conversion fees.  This would apply for stock of companies based on US stock exchanges such as NYSE, as well as for Canadian companies listed on the TSX who happened to pay their dividends in US currency.  This would be a great way to accumulate US cash for spending purposes without paying currency exchange rates.

Multiple sources on the internet including a Globe and Mail Investor column, MyOwnAdvisor.ca, CanadianCapitalist.com and DividendEarner.com have listed Canadian companies who pay their dividends in US currency.  I happened to own several of them including two Brookfield Asset Management listings (BIP.UN and BEP.UN) and Algonquin Power (AQN.T).  Accordingly I requested my discount broker to move the shares of these stocks to the US side of my accounts, thinking that I was saving money on currency conversion.  As it turns out, this was only partially correct.  Algonquin Power does actually pay its dividends in US dollars and each quarter, I have been receiving the exact amount of US cash that I expected to, based on their posted rate multiplied by the number of shares that I held.

As it turns out, this is NOT the case for Brookfield.  Just recently, one of my blog readers kindly pointed out to me that people who had moved their Brookfield shares to the US side of their account were complaining that they were actually losing money!  This is because the declared "US dividends" were actually being converted to Canadian when paid to the discount brokers, who then convert them back to US in order to allocate to the US side of their accounts.  In all, they were losing 2.5+ percent per transaction!  I guess I should have verified this myself when I made the switch, but who knew that so many sources could be wrong?  This seemed very confusing to me, so I set out to investigate.

First I confirmed that the assertion was true by finding the latest published quarterly yield for my stock which I then multiplied by the number of shares that I held.  For example, I have 353 shares of BEP.UN in the US side of my TFSA account and the rate of payout for March was USD 0.515.  Accordingly I expected to be paid $181.80 USD.  Instead I was only paid $176.82 with the difference being attributed to conversion fees.  The net difference was even larger in my husband's RRIF account where he held significantly more shares of BIP.UN.  Next I wanted to understand why this was happening and where the double conversion was taking place.

I looked on the Brookfield Dividend Page and found this disclaimer at the bottom.  The first sentence is what probably led to the widespread misunderstanding.

Please note that the quarterly dividend payable on Brookfield's Class A Limited Voting Shares is declared in U.S. dollars. Registered shareholders who are U.S. residents receive their dividends in U.S. dollars, unless they request the Cdn. dollar equivalent. Registered shareholders who are Canadian residents receive their dividends in the Cdn. dollar equivalent, unless they request to receive dividends in U.S. dollars.

I phoned Scotia iTrade to find out whether it would be possible for me to request Brookfield to pay my dividends in US dollars.  What I was told was that Brookfield was not paying me (or any other investor directly).  They were paying the discount broker, which is a Canadian corporation and therefore the payouts from Brookfield are in Canadian dollars.  So it makes absolutely no sense for me to hold these stocks in the US side of my account, incurring a conversion fee each time a dividend is paid.  I asked iTrade to move my Brookfield stock back to the Canadian side of my account, but I worry about all the misinformation that is still out there about Brookfield.  I will try to contact some of these websites to make them aware of the situation and ask that Brookfield be removed from the list of "Canadian companies paying US dividends", or at least clarify that they do not pay this to Canadians!

On the other hand, Algonquin Power does pay its dividends in US dollars regardless of whether they are paying a Canadian or American resident.  I will now count on it to generate US cash dividends that I can use to spend.

Note: Since posting this blog entry, I have received comments from several people who indicate that they do receive the full US dividend from Brookfield on the US side of their account.  BMO Investorline seems to pay out in full and one person even indicated TD Direct Investing, even though I heard that others from TD were charged a currency conversion fee.  I haven't figured out what the deciding factor is.   I guess the take-away from all this is that you should double-check with your own discount broker.  I plan to ask mine why we are being charged a fee at Scotia ITrade while other discount brokers do not.