Look before you leap into U.S. dividend stocks

O say can you see … all the great dividend stocks south of the border? With about 78 per cent of Canada’s benchmark index made up of just three sectors – financials, energy and materials – many Canadians are looking to the United States to diversify their portfolios. It’s a prudent strategy, given the broad selection of U.S. consumer, health care and industrial stocks – sectors badly under-represented in Canada.

But before you start painting your portfolio red, white and blue, here are some things to watch out for. U.S. stocks don’t qualify for the dividend tax credit, so if you hold them in a non-registered account, the taxman will take his full pound of flesh. Even if you minimize your taxes, pick your stocks carefully and hold through thick and thin, your gains could be wiped out if the currency market moves against you. Brokers love clients who buy and sell U.S. stocks and receive U.S. dividends in registered accounts. That’s because, in addition to charging trading commissions, they collect a hefty currency conversion fee that can range from 0.5 per cent to more than 1.5 per cent on every transaction.

Source: Globe & Mail

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