American’s why don’t you buy Canadian stocks?

Canadian stocks

American’s why don’t you buy Canadian stocks now?

Canada is a fantastic place to live, but currently our dollar sucks! Yeah it really does….. It has bounced back a little bit but come on…. If I were to convert some Canadian dollars to Usd at the moment I would get 77 cents per dollar (minus currency exchange rates)

A 23% loss right off the bat….

But if you are a American that’s a 23% gain converting to Canadian dollars. That is pretty dam sweet.. It really wasn’t that long ago when the Canadian Dollar was actually worth more than the Usd. January 2013 to be precise..

I remember when our dollar was around par and so many people would go south of the border on shopping sprees. People here in Canada would complain that we still had the Canadian price for books even know our dollar was worth then the American’s. Yet prices on books are way cheaper in usd…

Back then I wasn’t into the stock market, but I’m sure a tonne of Canadian’s were loading up their rrsp’s with great US stocks, that would of been a fantastic time to top up some positions…. but yet right now I barely read any US bloggers buying Canadian stocks (or holding any for that matter)

I don’t get it… I know its personal finance and everyone’s way of doing things are different. Diversification is huge though, especially geographically. This would be the time, to diversify into the Canadian market and receive a 23% discount off stocks instantly.

Those price to earnings numbers would be drastically different if you factored in a 23% discount. Now I know you would need to get our dollars up to par again to realize that kind of gain.

According to ofx.com The average conversion rate between Canadian dollars and Us dollars over the last 28 years is 0.80884 cents… It doesn’t seem to far off currently but the averages include 5 years 1998 – 2002 that ranged between 63 cents and 67 cents. Which is way lower than the norm.




Markets

If we compare stock markets, its really not much of a competition the US market has dominated the Canadian Market. What Trump has been doing has benefited their companies a tonne. The tsx has went up but nothing extremely exciting.  Well unless you got into the pot stocks. Then Canada seems to be the place to be.

In this long bull market, the Us market seems to have a lot more room to fall before hitting previous floors while Canada really doesn’t. This might be a little factor if you want to start making your portfolio a little more defensive, if your worried about a pullback.

The 2009 financial crisis really showed the strength of the Canadian Banks and they continued to pay out dividend’s. They might be a great start for diversification  into the Canadian Market. Currently I think BNS is a steal, but maybe you might be more comfortable with TD as it is really making good progress in the US states.

As primarily a dividend investor, I can say Canadian Companies don’t have the dividend history of some of the great’s in the US. Our longest dividend aristocrats are Canadian Utilities and Fortis sitting around the 47 year mark of raising dividends, which is still a long track record! Although Bank of Montreal has paid dividends without interruption for 189 years. (I’m pretty sure that’s Canada’s longest paying dividend stock)

Conclusion

Canada has great Financial, Basic Materials, Utility and Energy stocks. I think we lack in solid healthcare, tech and consumer defensive stocks. By diversifying your portfolio between both Countries you can create a fantastic footing for a mammoth portfolio.

History shows the current Canadian dollar compared to the USD is lower than average and American’s (or other region’s for that matter) should take advantage of that.

As a Canadian would I buy US stocks currently? If the price of the stock I was interested in was right and it was in a sector I lacked maybe. If my tfsa was maxed I would most likely buy Canadian stocks in our RRSP’s and sell them when the currency evens out a bit, to buy certain Us stocks.

I’m curious what are your thoughts on this?

  • Canadian’s are you buying US stocks at these dollar rates?
  • American’s why aren’t you taking advantage of the dollar?

Cheers!

27 Responses

  1. Rob, 15% dividend witholding tax. If the US had a tax reciprocity agreement like we have with the UK, I would be all in on Canadian stocks for the reasons you mention. Because of the tax I avoid them. Can’t recover it in my IRA and in taxable account I don’t make enough earned income anymore to take the tax credit. Exchange rates are to unpredictable for me to count on even though I understand your point given the current exchange rates. Tom
    Tom @ Dividends Diversify recently posted…Altria – A Dividend Monster with Plenty of Business RiskMy Profile

    • Rob says:

      hey Tom

      Couldnt you buy the Canadian stock on the nyse? ie Td bank which is listed on both exchanges

      Also i thought the roth holding canadian stocks avoided the witholding tax if you held it for 5 years or something like that.

      Im sure you know the rules of American accounts better than I though.

      Cheers

  2. Greg says:

    Hi. As a long time value/dividend investor I own Canadian stocks in banking, manufacturing, utilities, oil, and telecom. Additionally I have Vanguard Index ETF – VUN (total USA stocks) and VFV S&P 500 which covers me for most USA market. I own IT stocks, manufacturing, drug and telecom in the USA. As an investor I still prefer to buy USA stocks. With our Liberal political climate it’s better in the USA for stocks.
    I DRIP all my investments and follow Buffett and Seeking Alpha site among others.
    So honestly if I was an American I’d stay away from Cdn stocks until the market and government improves.

    • Rob says:

      hey Greg

      great points. Long term the us market has definately put performed.

      hopefully the rise of pot stocks will help lift our market as well.

      cheers and welcome! Always love seeing new faces

  3. I could be wrong because I don’t own any, but pretty sure any of the Canadian stocks on the NYSE are still listed under USD and not CAN. So you really aren’t saving money. And converting USD to CAN to buy them on a different exchange would still warrant the same price but you are even more down if you are required to pay any fees for converting currency. Also I don’t know how other brokers operate but most charge higher/extra trade fees for buying on other exchanges which makes it less worth it. I would buy Canadian stocks, but I would value them as any other American company when making my considerations. And I would rather them be posted on an exchange that doesn’t charge me extra.

    • Rob says:

      hey Daze

      yeah i dunno for sure either but always thought a dual listed stock would change based on original countrys currency.

      ie td on nyse is cheaper than on tsx but if the dollar was equal then they would be same price.

      Maybe someone knows for sure and can jump into the conversation.

      Thats interesting about that broker thing with rbc its the same fee.

      Always learning, thanks for schooling me

      Cheers

  4. Great post, Rob! I think you make a great point about buying US stocks. I can understand Tom’s point about avoiding the 15% withholding tax. I specifically hold just Canadian Stocks in my TFSA for that reason. An RRSP allows me to avoid the US withholding tax, so I think it does make sense to buy US stocks for us. I’m not sure about US account types though. Also, I haven’t been buying US stocks at these rates. But I think I’m going to need to soon because my portfolio needs more diversification. Plus some of the US companies are too great to avoid. Thanks for sharing man!
    Reverse The Crush recently posted…9 Books to become a better Investor & Money ManagerMy Profile

    • Rob says:

      Hey Graham

      Do true that withholding tax is a killer and like you keeps me away from us stocks in my tfsa.

      I mean more for buying them in a retirement account without that tax.

      My Canadian portfolio is getting high too, hopefully the dollar will start bouncing back soon enough.
      cheers

  5. Doug says:

    its beneficial in both a non taxable and taxable account.
    In retirement accounts taxes are not supposed to be taken out. So you benifit that way. In a taxable account by rule it’s supposed to be 25 percent but a tax treaty makes it 15 percent.
    Here is where the advantage of having them in a taxable account comes in. Since the taxes are taken out instantly it can be used to reduce your US tax liability at the end of the year
    You have to weigh the options.
    That being said I would buy in my taxable account as that’s all I have right now.
    Doug recently posted…August Dividend ReportMy Profile

    • Rob says:

      hey Doug

      thanks for clarifying!
      I was thinking it would be something like us canadians.. Tax free in our retirement account (rrsp).

      Withholding tax is a big issue and is the reason I wont hold us stocks in our tfsa.

      cheers man!

  6. Nelson says:

    Tom nailed the big reason why Americans avoid dividend stocks, IMO. Besides, why buy a Canadian utility/telecom/bank when there a plenty of options that don’t come with currency risk?

    On the other hand, my website stats say approximately 50% of all page views come from the U.S., which I thought was a lot for a site called Canadian Dividend Investing.
    Nelson recently posted…Why I’m Not Buying DollaramaMy Profile

    • Rob says:

      hey Nelson

      Welcome man! Thats interesting. Canada is my top traffic source country but it is so close to America.

      Interesting that you bring up currency risk. Do you really think people worry about the value of the Canadian dollar that much?

      While the us has been the world currency for soooo long, its seems like that may get challenged soon enough.. Trump is basically the joke of the world and America has a growing amount of debt…

      Oh yeah and the trade wars they are starting all over the world.

      Meanwhile China is stacking gold and resources…

      Just my opinion, but yeah for now the usd is the safe haven.

      cheers and thanks for commenting!

  7. Had I lived in the States, I would only be invested in US stocks. There are so many great companies in US that I wouldn’t bother with Canadian companies. American people are big consumers and they have more purchasing power compared to Canadians. We are so heavily taxed, that whatever medium class earns, is only enough to buy necessities. For dividend perspective, there’s no benefits for Americans to buy Canadian stocks and for growth perspective, US is a better place to be. However, there’s a new industry emerging in Canada and it’s pot. That would be the only place to invest if they want exposure to legal pot.
    Dividend Income Stocks recently posted…My First Investment in Cannabis Stock: FSD PharmaMy Profile

    • Rob says:

      hey German

      Great points. Although lately I think Canada may have the better banks, which may be a great start.

      As for the pot stocks, its great to see Canada leading in some industry. Hopefully the big players canopy, aurora etc will stay Canadian and just keep buying the smaller competition.

      Cheers

  8. Caroline says:

    I have too much in CDN stocks but the US dollar being so high I have been staying away from purchasing more US.
    I will have to take the plunge soon to keep my portfolio balance.
    And I only have it in my RRSP:)
    Caroline recently posted…August 2018 – Income, Expenses And GoalsMy Profile

  9. DivvyDad says:

    There are a few reasons that I’ve avoided Canadian, or any other foreign market, stocks in my investing:

    1. Taxes – As noted by Tom, there is an immediate tax imposed. It can be avoided in retirement accounts, based on my understanding, and one may be eligible for tax credit if in a taxable account. Based on the added complexity and scenarios, I’ve generally found it easier to avoid it and choose from the US options available to me.

    2. Cost – I cannot speak to all brokers, but with mine you have to first get approved for trading on foreign exchanges. Once approved, the trading commissions are higher than for stocks on the US market.

    3. Knowledge / Understanding – With all of the above, and likely more, I haven’t invested the time to truly understand all of the nuances. With plenty of investment choices in the US, I haven’t had a strong enough impetus to sit down and truly learn everything I need to do to invest in a foreign market and what the impacts are to do so.
    DivvyDad recently posted…Evaluating a Loser :: Franklin ResourcesMy Profile

    • Rob says:

      hey Dd

      Its soo crazy to me to hear about higher trading fees in other countrys… lol but yeah that would be a factor.

      While the points on the us market having lots of great companies options etc is true. Geographic Diversification is still pretty important no matter which Country you live.

      To each’s own, Thats why its called personal finance!

      Cheers man.

  10. GYM says:

    I’ve had spillover from my RRSP and have some US stocks in my non-RRSP. For the longest time I avoided US stocks because of the USD/CAD conversion and withholding tax. I don’t care as much anymore because the S&P500 has schooled the TSX’s a*s recently and the gains from S&P500 or being invested in US outweight the withholding tax to me.

    Interesting reading the comments, I didn’t know that people down south had to buy Canadian stocks in US dollars.

    • Rob says:

      hey Gym

      Sometimes the comments on peoples posts caN school ya! I had no idea trades were more in other countries for them.

      Yeah its crazy how crappy the Canadian market in general has performed the last couple years.

      cheers

  11. Enjoyed coming back and reading the comments. Wanted to see if I was missing something, but generally most of the comments confirmed my original thoughts. Good post Rob. Tom

  12. Hey Rob! I came across this article today and thought it might be an interesting addition to this post.
    http://www.kiplingers.com/slideshow/investing/T018-S001-25-best-canadian-dividend-stocks-for-u-s-investors/index.html
    Check it out if you have a chance. I’d be curious to know if you agree with the majority of their Canadian stock selections.

    • Rob says:

      hey Engineer

      great link, thanks. I definately agree. And I probably hold about half of them

      Interesting to read about suncor, maybe i should look into them a little more!

      thanks again
      cheers

  13. Jinglebells says:

    Buying at a discount with dollar conversion is useless if it has to be converted back before it can be used (Americans need USD).

    In any case, the Canadian stock market is garbage. Has been for many, many years. While the S&P 500/DOW have made massive returns the TSX looks more like Japan’s not long after their epic housing bubble. But don’t take my word for it: https://www.macleans.ca/economy/money-economy/canadas-stock-market-is-the-worst-in-the-world/

    I’ve–even after the bear market we are in right now with 20% price drop since September–seen massive gains with my passive index investments in US markets. How would those have fared with a Canada-heavy bias? Very badly!

    • Rob says:

      hey Jingle

      welcome! Some great points here for sure.

      Im curious what passive income investments have shown massive increases in this bear market. Seems like your talking stock? or even
      etf? healthcare sector has held up well.

      anyways looking forward to seeing what your doing.
      cheers!

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