Get USD Dividends With These CAD Stocks

Although I like to argue that the TSX isn’t really as Canadian-centric as you’d first think, I’m the first to admit that there are various legitimate reasons why you might want to invest some of your money outside of Canada. Especially into different currencies.

The big reason is currency hedging. Canada imports a lot of things, including much of the food we eat. A big chunk of that food is priced in U.S. Dollars, which is the reserve currency of the world. When the U.S. Dollar strengthens (or the Canadian Dollar weakens), that food costs more in local currency.

(We’ll note that most of the USD/CAD relationship is dominated by the USD, so USD strength is what matters most of the time)

Therefore, having U.S. stocks is just another way you can hedge your consumption, a powerful investing concept your author thinks should receive way more attention.

Another reason for holding at least some of your assets in U.S. stocks is it creates options. Look, I think Canada is a wonderful country to live in. We have a vibrant economy, loads of natural resources, terrific farmland (that’s only going to get more valuable as climate change impacts competing farmland), proximity to the world’s largest economy (potential tariffs notwithstanding), and a million other advantages.

But I’m the first to admit Canada isn’t perfect. As I type this, it’s -28 in Edmonton, a temperature I think we can all agree is too. damned. cold. Also, our natural resource economy struggles when prices are low, which happens from time to time. And you can easily argue that technological advances will replace the need for Canada’s oil in the long-term.

If an investor has at least a portion of their portfolio in USD, it makes leaving Canada at some point a far easier decision — at least financially. This portfolio would generate plenty of U.S. Dollars in dividends, capital that could get reinvested until the time comes to spend it.

There’s just one problem…

Converting to USD when CAD is weak

Even though this website is called Canadian Dividend Investing, and I only invest in dividend stocks, I’m really a value investor at heart. 

Most of my portfolio rules are only something a value investor would care about. For instance, I’m a big fan of buying shares of excellent companies when they’re trading at 52-week lows — or some other similarly low valuation.

Most other investors don’t care about that, and are happy to buy at 52-week highs if the underlying thesis gets them excited enough.

I view converting currencies through the same value lens. It’s fashionable to want to convert Canadian Dollars to U.S. Dollars at a point like today, when the Loonie is at a multi-year low versus the Greenback.

But I prefer a different way of thinking. I want to move my local currency into U.S. Dollars when it’s strong, not when it’s weak. If anything, I think the prudent move is to convert my U.S. Dollars back to Canadian Dollars when the latter is weak.

I would then wait out the weakness, and move that capital back to U.S. Dollars when the exchange rate is more in my favour.

Most investors seek out the opposite. They’re worried that the near-term trend of Canadian Dollar weakness will continue, so they want to convert their Loonies into Yankee Bucks — before it’s too late. I believe that these investors are guilty of giving too much emphasis to the short-term, while ignoring the long-term.

And remember, currencies move in cycles. They have for decades. What’s more likely — that today’s weakness is just part of a cycle, or that the Canadian Dollar is weak forever? My money is on the cycle.

The good news is there’s an easy way to get a little exposure to USD in your portfolio, while keeping it in Canadian Dollars. You do this by using Canadian stocks that pay dividends in USD.

Here are a few examples.

Canadian dividend payers that distribute USD dividends

Let’s start out with Nutrien (TSX:NTR)(NYSE:NTR), the world’s largest potash producer. It also has robust nitrogen and phosphate production divisions, which are major crop inputs. Essentially, Nutrien is a bet on farming in North America.

Nutrien also has a retail business, which sells crop inputs directly to farmers. This is an underrated part of the business that quietly generates consistent, sustainable cash flow that isn’t directly linked to potash prices. Nutrien’s retail business has operations across the world, including in Canada, the United States, Australia, and Brazil, among other locations.

Nutrien has a history of dividend growth since it merged with Agricore. It started paying a USD dividend in 2018, and has hiked that payout each year since. The current yield is a hair over 4%.

Next up are a couple of REITs that own property in the U.S. but trade primarily here in Canada. BSR REIT (TSX:HOM.un) owns garden-style apartments in the Sunbelt area of the U.S., places like Texas, Oklahoma, and Arkansas. Most of its portfolio is located in Texas, a market with excellent projected long-term population growth.

Like Nutrien, BSR pays its $0.047 per share monthly distribution in USD. That works out to a 4.2% yield.

Another REIT that owns U.S. property but trades in Canada is Flagship Properties REIT (TSX:MHC.un). Flagship owns mobile home parks across the U.S. Midwest, with its portfolio in places like Indiana, Kentucky, and West Virginia.

There are a number of advantages to owning these types of assets. Most real estate investors don’t want to touch mobile home parks, so cap rates on the underlying assets tend to be higher. Parks collect lot rent, meaning there’s not a lot of upkeep expenses. And mobile homes provide an affordable option for families and retirees, which is a good thing.

Like the other two stocks on this list, Flagship Properties REIT yields a hair over 4%.

Another advantage to owning both BSR or Flagship Properties is shares trade in both Canadian currency and U.S. currency on the TSX. This means that an investor can buy in Canadian Dollars, collect their U.S. Dollar dividends, and then sell shares in USD when the time comes. It’s a way to convert your Canadian Dollars to U.S. Dollars for (almost) free.

There are other options too, including:

• Brookfield Renewable (TSX:BEPC)

• Brookfield Infrastructure (TSX:BIPC)

• Brookfield Asset Management (TSX:BAM)

• Brookfield Corporation (TSX:BN)

• Slate Grocery REIT (TSX:SGR.un)

• Restaurant Brands International (TSX:QSR)

• Thomson Reuters (TSX:TRI)

• Fairfax Financial (TSX:FFH)

• Open Text Corporation (TSX:OTEX)

• TFI International (TSX:TFII)

• Gildan Activeware (TSX:GIL)

• Franco-Nevada (TSX:FNV)

• Wheaton Precious Minerals (TSX:WPM)

Warning — you can’t do this with most Canadian stocks

There are dozens of large, blue-chip Canadian stocks that are dual-listed in both Canada and the United States. These include:

• Canada’s five largest banks

• Two top life insurers (Manulife and Sun Life)

• Three top telecoms (BCE, Telus, Rogers)

• Both major railroads (CN and CP)

• Many of our major energy companies (including Suncor, Imperial Oil, and Canadian Natural Resources)

• Many more

The problem with this strategy with most Canadian stocks is they continue to pay dividends in CAD, meaning the benefit just isn’t there.

All you’re doing is converting CAD dividends to U.S. Dollars at the current exchange rate. If the U.S. Dollar continues to strengthen against the Canadian Dollar, those CAD dividends are going to seem pretty crummy in USD.

For this strategy to work over the long-term, you have to limit your holdings to stocks that pay U.S. Dollar dividends.

The key step in this strategy

Before you go down this path and start buying up these U.S. Dollar dividends, make sure of one thing.

You need a way to collect these dividends without them being converted to Canadian Dollars first.

How you implement this strategy will depend on which brokerage you use. For instance, your author primarily uses QTrade. I think the service is good, the commissions are competitive, and I recently got a bonus for transferring my TFSA over that was generous enough that it’ll fund my commissions for the next 20 years.

Another advantage to using QTrade is it’s simple to implement this strategy. Here’s what I do:

1. Buy the stock using CAD in one of my CAD accounts

2. Transfer that stock to my USD account

3. Sit back, relax, and collect USD dividends

4. Reinvest those USD dividends once they hit a certain point

It is ridiculously simple to do. It takes about 90 seconds to setup the transfer, and then the work is done.

Remember, a major source of brokerage revenues comes from converting currencies. Each time you get paid a dividend in USD inside a CAD account, that amount is immediately converted over — and the customer pays a fee for that.

One more thing

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