Buying Foreign Stocks Direct
Traditionally, the investment of choice for investors who want to own foreign stocks has been mutual funds. However, for investors who prefer to own individual stocks, American depositary receipts (ADRs) offer an attractive alternative.
ADRs, which trade on U.S. exchanges, represent ownership of shares of foreign companies. Investing in ADRs has become increasingly popular in the U.S. According to The Bank of New York Mellon ($25; BK), a record 119 billion ADR shares valued at $3.7 trillion traded on U.S. exchanges last year.
One reason for the growing popularity is the ease of investing in ADRs. Indeed, investors buy and sell ADRs just as they would shares of U.S. companies. ADR prices are quoted in U.S. dollars and pay dividends in U.S. dollars. And those dividend payments, in many cases, receive the preferential tax treatment (maximum 15% rate) afforded dividends paid by U.S. companies.
Many ADRs offer dividend-reinvestment plans through which investors may buy shares directly from the company via reinvested dividends and optional cash investments. These programs work like the DRIPs offered by U.S. companies. Investors obtain enrollment information by calling toll-free numbers or downloading forms from the Web sites of transfer agents that administer the plans.
Major transfer agents handling ADR direct-purchase plans are:
• J.P. Morgan (www.adr.com)
• Citibank (www.citibank.com/adr)
• Bank of New York Mellon (www.globalbuydirect.com; www.adrbny.com; www.melloninvestor.com)
• Deutsche Bank (www.adr.db.com)
• American Stock Transfer and Trust (www.amstock.com)
Some of these Web sites provide more than enrollment forms, allowing investors to buy shares online, direct from the companies.
The terms of most ADR direct-purchase plans are similar:
• Minimum initial investment is usually $200 to $250.
• The fee on the initial investment is usually $10 to $18.
• Minimum subsequent investments after the initial purchase are usually $50 to $100.
• Purchase fees are usually $5 plus $0.08 to $0.12 per share.
• Selling fees are usually $5 to $10 plus $0.10 to $0.15 per share.
• In most cases, shares may be sold via the telephone.
More than 200 ADRs, representing companies from at least 30 countries, offer direct-purchase plans that let any U.S. investor buy shares directly, the first share and every share. The table below provides a sampling of some of the more prominent ADRs offering direct-purchase plans.
Notice that the yields and dividends in the table are estimated. These dividends generally reflect what the company has paid over the trailing 12 months. It is not unusual for ADRs to pay dividends only once or twice a year.
Investors should realize that ADR dividends will be affected by currency exchange rates, so dividends can fluctuate significantly. Also worth noting: a portion of dividends paid on ADRs may be withheld for foreign tax purposes, although investors can recoup that money by requesting a foreign tax credit when they file income taxes.
Among the stocks on the list, United Kingdom-based pharmaceutical company AstraZeneca ($40; AZN) represents an especially attractive ADR investment. The stock’s yield of 4.8% and operating momentum should drive market-beating total returns in 2009. AstraZeneca is rated Buy and Long-Term Buy.