Hiding In Plain Sight

“cant see the forest for the trees”

Simply that you have focused on the many details and have failed to see the overall view, impression or key point.  Urban Dictionary

I find it interesting when multiple unrelated occurrences converge and coalesce into a singular thought.  Case in point:

  • Investment Hunting did a financial quiz with one of the questions being “I’ve never bought a stock on OTC Markets?” Wallet Squirrel’s response (presumably tongue-in-cheek) was, “No, no idea (what) that is. “Octopus Tentacle Club”?”
  • DivHut presented his June 2016 stock considerations with a response by Tawcan being, ” … I continue to like V, SBUX, National Bank (not sure if they’re listed in US market) …”

It dawned on me that there was a lack of understanding regarding the OTC (over the counter) market.  Without getting into the nuances (grey, pink, etc.), let me just that a significant benefit to US investors is unprecedented access to foreign markets – notably Canada, but also Australia, Singapore and more.  In this post, I’ll focus on Canada.

The US OTC market, unlike the NYSE or NASDAQ, is decentralized with dealers acting as market makers often through proprietary trading systems.  The good news is that the larger players, such as Schwab or TD Ameritrade, have access to most issues.  Smaller players, like Motif, do not participate.  US investors then have basically four options when investing in Canadian issues:

  1. Purchase dual listed stocks.  These trade on both the New York and Toronto exchanges and are the common Canadian stocks held by DG enthusiasts.  They include – but are not limited to – the big banks (TD, BNS, RY, CM and BMO).
  2. Trade directly with the Toronto exchange via your broker’s foreign desk.  This option is typically a service carrying a premium price tag,
  3. Purchase an ADR (which can entail custody fees), or
  4. Purchase shares on the OTC market.  These are also known as Foreign Ordinaries.

There is FX exposure and a potential tax liability (15% withholding if in a taxable account) with any of these approaches and the dual listed companies are the more direct candidates.  But let’s assume you want to invest in a non-dual listed Dividend Aristocrat like National Bank.  I’ve built a spreadsheet of the 157 dividend paying companies that are not dual listed and are currently available on the OTC market.  The yellow highlights are the Aristocrats.  A linked company name retrieves a review written by a fellow blogger (Dividend Beginner, SPBrunner, Sure Dividend, Roadmap2Retire, Tawcan, Monsieur Dividende, The Dividend Girl and Dividend Earner) with Colomn G a link to their homepage.   The steps are as follows:

  1. Identify and research a company using your due diligence and determine your price target.
  2. Find the company’s OTC ticker on the sheet (ex., NA = NTIOF)
  3. Determine if your broker supports this trade
  4. Place a limit order for the US$ price you’re willing to pay plus a penny or two.  (There some embedded fees you need to account for.  For instance, my last order for Hydro One was executed at $18.2907 vs. my limit price of $18.32)
  5. If you place an odd-lot order (less than 100 shares), your broker may need to call the market maker for execution.
  6. Settlement is T+3.

Hope this clears up some questions.