Direct Purchase Plans: The Foreign Option
by Jon Harris
With current growth rates in many international markets outpacing growth in the U.S., many individual investors are casting a longing look at the foreign markets.
Mutual funds that invest overseas are one approach to foreign diversification. But for investors who want to purchase individual foreign stocks, American depositary receipts (ADRs) offer an alternative.
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An ADR is a negotiable certificate that trades like a common stock; it is issued by a U.S. bank and represents shares of a non-U.S. publicly traded company. They are priced in U.S. dollars and owners avoid many costs associated with direct foreign investment.
To help fuel interest in their ADR offerings, several banks have set up investor-friendly direct purchase plans (DPPs). As international returns have recently beaten the U.S. markets, DPPs have grown in popularity, and the banks have increased their number of company offerings.
Three bank programs, in particular, give investors many ADR offerings with favorable purchase and reinvestment options; they are presented in Table 1, along with a description of the features of their programs.
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Discussion
Rather than re-invest dividends and deal with fractions of shares and to simplify records for tax purposes, I prefer cash and then reinvest it.
Since my portfolios are eighty percent IRAs I try to stay away from dividends from foreign countries as they tax them and IRAs do not get credits that taxable portfolios get on Form 1040.
posted about 1 year ago by Eugene from Texas
