In our pursuit of mitigating downside risk by delivering income-paying securities to your portfolio, the CIBC Wood Gundy Waterloo Allan Bush Investment Team advocates a level of country diversification for your overall asset mix when appropriate.

For example, if we are searching for dividend-paying stocks to generate a regular income stream, our neighbours to the south offer a significantly broader selection of names. The market capitalization of US and Canadian dividend-paying stocks was $9.5 trillion and $280 billion, respectively, according to the MSCI index in 2021. The more comprehensive selection allows for more precision when selecting where we are taking our market exposure.

The additional selection is a benefit, but for unregistered assets, the tax-preferred treatment of Canadian dividend income is not extended to dividend-paying stocks from other countries. Fortunately, the US-Canada tax treaty reduces the typical 30% tax on US dividends to 15% on “qualifying dividends”.

A secondary factor that needs to be accounted for is that these securities are traded in US dollars. Therefore we need to purchase them in US dollars if we are going to buy them directly. If the purchase is through a pool like an ETF or mutual fund, we can buy them in US or Canadian dollars. The latter will rely on the pool manager to deal with the currency exposure.

The positive story around buying the asset class of dividend-paying stocks, in general, still holds true regardless of whether the company is Canadian or American. Like in Canada, US dividend-paying stocks are companies that distribute a portion of their profits to shareholders as dividends. They also typically offer a stable source of income, which can help provide downside protection during market volatility. These stocks are also commonly less affected by price fluctuations than non-dividend-paying stocks.

Finally, whether Canadian or American, the steady stream of income from the dividends can help offset reductions in the stock price of that dividend-paying company when they occur. This diversification of your portfolio continues to be a mainstay in how we mitigate downside risk.

By adding US dividend-paying stocks into your portfolio, you can benefit from additional levels of diversification, which can reduce potential downside participation when the markets fluctuate in times of volatility. At Allan Bush Investment Team, we’re always here to talk to you about your overall financial plan and how income-paying investments could be a welcome addition.