ADRs and yields

[chang]

This post and the next one moved from another thread.

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It’s kind of interesting that dividends of ADRs can be noticeably different than their parent stocks. I just checked TTE (4.75%) vs TTE.PA (5.31%). Also RIO (7.82%) vs RIO.L (8.20%), and ING (4.61%) vs INGA.AS (4.79%).

Is there a pattern here?

I checked Sanofi, Roche, UBS, and Shell. Small differences, but in all cases the parent stock’s yield is higher. Do the ADRs skim something off the top?

[anitya]

I added more to XLE.

chang ,

I have had the same suspicion while preparing the 2022 tax return.

In 2022, Tencent distributed JD.com shares to all Tencent shareholders except US shareholders (ADRs), who received cash. What I received in cash was considerably less (may be half?) than the cash value of JD shares I should have received. I did not complain here about it because not much can be done about it but I think you should consider buying parent shares directly in your non-US brokerage accounts.

Were you able to take full foreign tax credit for foreign taxes withheld in 2022?

[chang]

Another one I just noticed. Lloyds Bank ADR (LYG) yields 4.80%, but on the LSE the stock (LLOY.L) yields 5.35%. (Yields per Yahoo Finance.)

I would love to know why ADR yields seem always to be lower. Are there some hidden fees? If so, they appear to be substantial.

[Deleted]

Are the ADRs paying in USDs and the others in their local currency or Euros?

[chang]

@django Yes, foreign stocks pay dividends in local currencies, I can confirm that since I own several (in different currencies). I assumed — and it’s entirely possible that I am wrong — that the ADRs pay dividends linked to the value of the ADRs (i.e., 1 ADR = X shares) at the exchange rate on the payment date. The yields might differ over a backward TTM a period due to FX movements, but the forward yield should not differ.

And in every case I’ve checked, the ADR yield is lower. If the effect was random, it should be 50/50. There’s something I’m missing.

[mnfish]

From Lloyds Investor Relations website - Form 20F

Share dividends and other distributions
The Bank of New York has agreed to pay to you the cash dividends or other distributions it or the Custodian
receives on shares or other deposited securities after deducting its fees and expenses. You will receive these
distributions in proportion to the number of shares your ADSs represent.

[yogibearbull]

ADRs provide a convenient way for foreigners to trade nonlocal stocks at local exchanges. They maintain a fixed ratio of number of nonlocal:ADR shares. Expenses involved include ADR listing expenses, costs involved in investor communications, handling of distributions, etc. One can think of them as pass-throughs.

Why the surprise that there may be a fee involved by an intermediary?

There are 2 main types of ADRs - sponsored (by the company) and unsponsored (started by anybody). One would expect sponsored ADRs to have low/no costs and have better protections.

Related, www.mutualfundobserver.com/discuss/discussion/59948/please-what-s-the-difference

[chang]

Thanks yogibearbull. At present I hold only one ADR (BTI) which I assume must be sponsored since it is referenced in the parent’s web site.

www.bat.com/group/sites/UK__9D9KCY.nsf/vwPagesWebLive/DO9FKEYN#

Unsponsored ADRs seem like an unwise choice of investment. (Probably also Chinese, Russian, etc. ADRs that carry confiscation, seizure, or other political risks.)

[steadyeddy]

Slightly off topic but still related to ADRs, do the international stock ETFs predominantly use ADRs or local currency stocks on their exchanges?

[yogibearbull]

steadyeddy, it could be a mix. It depends on whether the sponsor/manager has direct-access to the foreign exchanges. So, if the managers doesn't have direct-access to a foreign exchange, the only options are to use expensive intermediaries (several ****F shares) or use ADRs (****Y shares).

As an example, many have direct-access to HK exchange, but very few have direct-access to China Mainland exchanges (need govt approval).

[chang]

Jul 21, 2023 12:24:42 GMT steadyeddy said:

Slightly off topic but still related to ADRs, do the international stock ETFs predominantly use ADRs or local currency stocks on their exchanges?

Interesting question. I checked SCHY and it seems that they hold positions on the foreign exchanges, not ADRs. (I say that based on checking some ticker symbols where I recognize both the ADR and the ticker on the local exchange. Maybe they do own some ADRs that I just didn't see.)

www.schwabassetmanagement.com/allholdings/SCHY

[anitya]

Seems like a great business to be an unsponsored provider of ADRs for doing administrative work. Far less work than offering some active mutual funds / ETFs, which is real work. May be a bit more work than providing single stock ETFs. Why are not Blackrock in the business of ADRs or they could just package these as single stock ETFs?

[Capital]

I found this WEBSITE with ADR fee and other info. Look at the dividend history tables.