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Rick D

Rick D
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  • Investing In The French Socialist Paradise [View article]
    La Marque,

    If you are a US-based investor, you hold French ADRs directly, and your brokerage files the proper paperwork for you (many do, some don't), you will get the US-France tax treaty withholding rate of 15% rather than the French statutory rate of 30%. If your shares are held in a regular taxable account rather than an IRA, 401k, or similar, you will likely qualify for the Foreign Tax Credit which effectively reduces or eliminates the French tax.

    I am not a tax expert, but it is my understanding that foreign investments held by institutional vehicles generally do not qualify for reduced treaty rates. Thus it is generally better to hold dividend-paying foreign investments directly rather than through ETFs or mutual funds.

    I own some TOT in my taxable account at Vanguard Brokerage. I have 15% tax withheld on the dividends, along with a tiny ADR fee, without having to do anything on my part. I then reclaim that tax on my Form 1040 via the Foreign Tax Credit. (The dividend is still subject to US tax, of course; it isn't totally tax free, though it does qualify for the preferential "qualified dividends" rate.) Under these circumstances I consider TOT to be an excellent income investment.
    May 20, 2015. 10:41 PM | 2 Likes Like |Link to Comment
  • Why I Am Confident In Royal Dutch Shell [View article]

    "Your supposed to buy B if you want to save on taxes."

    Not necessarily. Please see the resources in my comment below.
    Apr 9, 2015. 11:02 AM | Likes Like |Link to Comment
  • Why I Am Confident In Royal Dutch Shell [View article]

    The question of whether to buy RDS.A or RDS.B comes up often. The subject has been discussed thoroughly (indeed, beaten to death) in the past. Please see Christopher's earlier article referenced in response to your earlier question and/or either of these two permanent resources on the subject:

    My Instablog post (fairly short, adequate guidance for most investors):

    Dividends Boom's article and its comments (comprehensive but very long):
    Apr 9, 2015. 10:59 AM | 1 Like Like |Link to Comment
  • More on Shell / BG Group: Shell offering a 52% premium [View news story]
    wildpitcher, your guess is correct.
    Apr 9, 2015. 01:53 AM | Likes Like |Link to Comment
  • Shell says it will sell twice as much LNG as Exxon, Chevron after BG deal [View news story]

    I doubt this will have any effect on Chevron's Gorgon or Wheatstone LNG projects in Australia. BG is not part of either of these. Shell has minority stakes in both.
    Apr 8, 2015. 03:50 PM | 3 Likes Like |Link to Comment
  • Why I Am Confident In Royal Dutch Shell [View article]
    UltimaMark, congratulations on your great timing! If I had spare cash, I'd be buying RDS.B today also.

    Just want to make sure to clarify your comment: you do not pay stamp duty on either RDS.A or RDS.B, and, while RDS.B is exempt from foreign withholding tax on dividends per the US-UK tax treaty, it is not exempt from normal US taxes on dividends when held in a taxable account.
    Apr 8, 2015. 11:55 AM | 4 Likes Like |Link to Comment
  • Why I Am Confident In Royal Dutch Shell [View article]

    Which share class to buy in a taxable account depends on the shareholder's individual tax situation. Many investors can recover most or all of the Dutch tax withheld on A share dividends via the Foreign Tax Credit, but some cannot and would be better off with B shares.

    As long as your broker participates, you can enroll in Shell's Scrip Dividend Programme in any type of account, not just taxable accounts. You are correct that this program makes the foreign tax issue moot for those who participate in it.

    Please see the guidance referred to in my previous post immediately before yours.
    Apr 8, 2015. 11:44 AM | 2 Likes Like |Link to Comment
  • Why I Am Confident In Royal Dutch Shell [View article]

    For guidance on which share class to purchase, please see Christopher's earlier article, "How I Bought Royal Dutch Shell", and its comments, or either of these two permanent resources on the subject:

    My Instablog post here (fairly short):

    Dividends Boom's article and comments (comprehensive but quite long):
    Apr 8, 2015. 11:34 AM | 1 Like Like |Link to Comment
  • Should I Own RDS.A Or RDS.B? [View instapost]
    Shell just announced that they intend to discontinue the Scrip Dividend Programme in 2017 if the BG Group acquisition goes through.
    Apr 8, 2015. 11:26 AM | 1 Like Like |Link to Comment
  • How I Bought Royal Dutch Shell [View article]

    Call Fidelity and ask them. Make sure you talk to someone who knows about the Scrip Dividend Programme and is aware that Shell has restarted it effective with the next dividend payment. If they automatically enroll you in Shell's Scrip Dividend Programme, you will receive A shares. If they do not enroll you in the SDP, you will receive B shares.
    Apr 8, 2015. 11:19 AM | Likes Like |Link to Comment
  • How I Bought Royal Dutch Shell [View article]
    It always amazes me how many people refuse to buy Shell simply because it comes in two share classes.

    RDS.A comes with what is by foreign tax standards a very reasonable 15% Dutch withholding tax on dividends, often recoverable on your 1040.

    If that's not good enough, Shell provides you not one, but two ways to completely avoid the 15% withholding: either hold B shares or enroll in the Scrip Dividend Programme.

    Shell even pays the ADR fees normally incurred by US-based investors in foreign securities!

    That's about as shareholder-friendly as you can get in a foreign investment.

    And you think that's a hassle?
    Apr 7, 2015. 08:29 PM | 1 Like Like |Link to Comment
  • How I Bought Royal Dutch Shell [View article]

    Your explanation for RYDAF and RYDBF makes sense.

    As for the shares being loaned out, I wouldn't worry about things like defaults or counterparty risk. The loss of the qualified status of the dividends is bad, but the shares themselves aren't gone. You can sell them at any time, and the short seller who borrowed them will be forced to either borrow the shares from someone else to give to you or close out his short sale. (That's one downside of short sales. You can be forced to close out your position when you don't want to.) The short seller is required to have enough assets at all times to close out his short sale on demand.

    I only have a cash account at my broker, not a margin account, but I understand that, in general, margin account agreements permit the shares to be loaned out without notice or compensation while cash account agreements do not. There are exceptions; for example, some institutional owners will let you borrow shares but will charge a lending fee. The bottom line is that you can probably avoid having your shares lent out without your consent by holding them in a cash account rather than a margin account. (I would double-check your account agreement to be sure.) Of course, this means you have to pay the full price for the shares.

    As for why substitute payments aren't considered qualified dividends, suppose there are 1,000,000 shares of a stock outstanding that pay $1 in dividends per share, so there are $1,000,000 of qualified dividends being paid. Now suppose someone borrows 100,000 shares and sells them short. Someone buys the 100,000 shares, so now there are effectively 1,100,000 shares that receive dividends. The IRS doesn't want additional qualified dividends to be "manufactured" in this way. (After all, the person paying the substitute payments gets a full deduction for them, or at least that's my understanding.) They only allow 1,000,000 shares worth of dividends to be qualified. Thus the substitute payments are not qualified. In effect, the substitute payments aren't "real" dividends because they are paid by the short seller rather than by the company.
    Apr 6, 2015. 02:03 PM | 1 Like Like |Link to Comment
  • Shedding Light On Why I Bought Royal Dutch Shell [View article]
    One of the reasons I own Shell is because it has the most interesting project portfolio of any of the oil and gas majors.

    Christopher mentioned renewables. Shell's renewables divisions are tiny, but Shell recognizes that renewables will play a greater role in the future. These tiny divisions can easily be ramped up in the future. In the meantime even these small divisions can do important research, giving Shell a leg up on competitors.

    Christopher did not mention some of the other things Shell is doing or has recently done:

    - The Prelude floating LNG platform is the first application of a concept that offers both lower costs for LNG production and the opportunity to monetize gas assets that are too far out to sea to be developed using land-based LNG infrastructure.

    - The Pearl GTL plant in Qatar is an amazing plant that takes dirt cheap and plentiful Qatari gas and turns it into sulfur-free diesel fuel which can be sold at world market prices. The size of this plant is incredible. It was very expensive to build. Originally budgeted at $5 billion, it ended up costing $19 billion. But despite the massive cost overruns, it has turned into a huge financial success for Shell.

    - Though there are obvious difficulties and challenges, Shell's Arctic leases have enormous potential.

    Shell is unique in that it has both the entrepreneurial spirit and the financial resources to take on projects like these.
    Apr 5, 2015. 11:24 AM | 1 Like Like |Link to Comment
  • Shedding Light On Why I Bought Royal Dutch Shell [View article]
    Additionally, the 15% Dutch tax on A share dividends can be avoided by reinvesting them via Shell's DRIP, the Scrip Dividend Programme.
    Apr 5, 2015. 10:57 AM | Likes Like |Link to Comment
  • How I Bought Royal Dutch Shell [View article]

    I had heard there was a way to recover the tax, but it involved getting a bunch of IRS paperwork (and paying high fees for it, as the IRS wouldn't furnish it for free), filing Dutch tax returns, and numerous other bureaucratic hassles and expenses. It's nice to know there is an alternative to this.

    Kindly post the particulars of how to recover the Dutch tax withholding as a comment to both my Instablog post and Dividends Boom's article. Those are the de facto permanent resources for this subject. I'm sure your comment will help others both now and in the future.

    Thanks very much!
    Apr 2, 2015. 11:41 PM | Likes Like |Link to Comment