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SPARK NEW ZEALAND Message Board

  • g552662211 g552662211 Dec 26, 2005 9:59 PM Flag

    Yield

    Does this stock always pay a 6.+% yield? Have a few shares currently, of nzt, and looking for stocks that pay well in dividends. USA small investor and not sure how foreign dividends affect a Roth IRA. Any information greatly appreciated. Have a great New Year..

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    • PS the symbol for Chile Telecom is CTC...trades on the NYSE. You can go to the NYSE's website (www.nyse.com) and do a lookup on the listed stocks from each country...that's how I initially found out about NZT.

    • I've been in NZT about a year or so and the yield has been north of 6% (closer to 7-8%)since that time...not sure prior to 2005.

      NZT's dividend is subject to the US foreign withholding tax. That tax withholding rate is currently 15% and is withheld by the brokerage firm...both the gross dividend and the withholding tax are reflected in the brokerage statements. As long as the US has a valid tax treaty with the source country (New Zealand in this case) you can take the foreign withholding tax as a tax credit on your personal 1040 tax return. However, a tax deferred account (Roth IRA in your case) doesn't get the same treatment as the account is tax deferred to begin with. It's possible there may be some type of "carryover" treatment when you begin to make withdrawls from the IRA account, but I'm not sure about that. In effect then, NZT in a tax-deferred account yields about 5% (6% nominal yield x 85% after-tax rate). For this reason I choose to hold all my foreign dividend-paying stocks in a taxable account, but individual circumstances may dictate that holding such a stock in a tax deferred account makes sense. FYI the USA has tax treaties with most developed nations around the world, although the withholding rate can differ from country to country. A withholding rate of 15% is typical...but for example the withholding rate with Israel is 18% and with United Kingdom and Greece is 0%...it's separately negotiated with each country and is part of the overall trade (and perhaps political) posture with each country.

      One other factor to consider is the US dollar's strengh or weakness when compared to the source country's currency. NZT has been relatively flat to weak in 2005, which I believe is due to the US dollar's strength in 2005, in addition to the usual company-specific factors that influences stock prices (earnings, strategic direction, dividend policy, etc etc.) All other things being equal, if you thought the US dollar was going to be very strong against the New Zealand kiwi (dollar), NZT's dividend would lose a lot of its appeal because the high nomimal dividend rate (6% +) would be eroded, perhaps significatly so, by the foreign currency translation. Long-term I'm a bear on the US dollar strength (high budget & trade deficits), but in 2005 the rising interest rate environment helped the dollar...that might hold in 2006 as well. In the end I don't believe anyone really knows where the dollar is going (myself included), but you make your best estimates given the information & outlook available at the time.

      There are other foreign telecom stocks that pay healthy dividends...I'd look to countries that have stable political environments and healthy export industries that help the underlying strength of their currencies. Telecom de Chile (8% + yield and strong copper exports) comes to mind. I don't own it yet but have been looking into it recently.

      Good luck and as always, do your homework and don't bet the ranch (or the kids' college money!) on any one stock or idea.

      Best regards...JH in Fort Collins, CO

    • this is an ADR - american depository receipt s- and has "treaty" for taxes here - the deduction for foreign taxes appears on your statements and is calculated in for your US tax burden... good luck...

 
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