When it comes to investing in stocks, most investors dream of big capital gains — share prices shooting through the roof.
But, according to Stocks for the Long Run author, Dr. Jeremy Siegel, dividends are arguably a much more important component of a stock’s investment return.
His research found that dividends accounted for roughly 75% of the US stock market’s total return up until the 1990s.
So, as a foreigner investing in African stock markets, it’s important not to discount the value of these company payouts.
This is easier said than done.
The Check is in the Mail … Arrgh!
Without careful preparation, non-resident investors will typically receive their dividends in their postal boxes, in the form of foreign-denominated checks.
These are a downright hassle to cash.
Trust me. I’ve got lots of firsthand experience.
I confess to having a safe deposit box full of uncashed dividend checks — denominated in various African currencies — that were mailed to my home address. Unable to cash them at my local bank branch, I’ve left them to molder there until I find time to deposit them.
So, if you plan to invest directly on a foreign stock exchange, how can you avoid ending up like me with a folder full of uncashed dividend checks?
1. Ask your broker to collect dividends on your behalf
Your first step should be to clarify dividend collection procedure with your local broker. When opening a brokerage account, ask them to collect your dividends and deposit them directly in your trading account, if possible. That way you can decide whether to reinvest or withdraw them at your leisure.
Many African stockbrokers do this as standard procedure. Still it’s important to confirm this arrangement with them in advance.
2. If your broker is unable to collect dividends, open a local bank account
Regulations in some African countries prohibit brokers from collecting dividends on their clients’ behalf.
Mauritius is one such country. Therefore, if you would like to be spared trying to cash a check denominated in Mauritian rupees at your bank’s teller window, you must open a Mauritian bank account.
This involves a bit of extra paperwork, but after it is set up, your broker will pass on your bank details to the share registrar, and your dividends will be deposited into the account where they can be withdrawn or transferred to your trading account.
3. If opening a local bank account is impossible, ask your broker for a nominee account
Opening a bank account in Kenya is not as simple as it is in Mauritius. As Belgrad Kenne of investment advisor, Phase One Associates, explains, “No bank in Kenya will open an account in absentia. They all require (by central bank regulations) a physical appearance (at a Kenyan bank branch).”
To circumvent this problem, Kenne says Kenyan brokers like AIB Capital allow foreign investors to open nominee accounts.
In a nominee account, all shares purchased by the investor are held in the broker’s name. The broker opens portfolio and cash accounts on each investor’s behalf. When dividends arrive, they are deposited into the investor’s cash account where they can either be reinvested or withdrawn.
If you opt to open a nominee account, clarify that you will retain full responsibility for buy and sell decisions on the account. You don’t want your shares to be traded without your authorization.
How to Deposit a Foreign Check
So, we’ve covered ways to make sure that you never receive a foreign dividend check in the mail. But what if you’ve already received one? How do you go about cashing it?
Unfortunately, I haven’t encountered any US banks that will cash checks denominated in African currencies. If you’re an account holder, however, most banks will offer to send the check to collections. There, the bank or a third party processor will attempt to collect on the check in US dollars from the issuing bank.
This process can take a long time. Sometimes months. On top of that, most banks will charge a fee for the service and the exchange rate you receive on the foreign currency isn’t likely to be very good.
I contacted a few banks to see how much they charge customers to clear foreign checks. Here’s what I found out:
[table id=197 /]
[Note that I haven’t seen currency conversion rates at TDBank or WellsFargo, so they may not be any better than Bank of America’s.]
So, there you have it. The cheapest, most efficient way to collect dividends on African stocks from afar is to have your broker deposit them directly in your trading account, via a nominee account, if necessary. Doing so minimizes fees and hassle, and helps to ensure that you receive the best possible exchange rate when you eventually decide to repatriate your funds.
Have you struggled with this problem? What ways have you found to solve it? Let’s hear your thoughts in the comments!
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6 thoughts on “How to Collect Dividends When Investing in African Stocks”
Thanks for this insightful article. Your points are valid. I work as an Investment Adviser/Portfolio Manager with an Investment Bank/Asset Management Group in Lagos, Nigeria; and we trade, invest and manage investment portfolios for individual investors (Retail & HNIs) and institutional investors (PFAs, Offshore Fund Managers, Treasuries of Corporates,etc). I always advise my Offshore clients/Non-resident Nigerian-investors to either subscribe to our Nominee Account service or give us Letter of Authorization to collect dividends due to them on their behalf. This has helped to avoid unnecessary pile-up of dividend warrants/cheques; and also the stress of requesting the Registrars to re-validate the Staled dividend warrants/cheques (they get staled if values are not received after 6 months of issuance).
So you be interested in bespoke Brokerage/Asset Management services either as a Individual or Institutional Investor, do not hesitate to contact me.
Thank you for your comprehensive exposition.
It may be added that some companies like Ecobank allow their subsidiary bank to redeem their warrants by paying dollars.
Good tip, Ben. Thanks. How can investors request this? Should they contact their broker or the company’s share registrar?
Thanks for your advice. I have been reading your blog for a few years now and finally moved to South Africa as a consultant with BCG. I’m looking forward to finally trying out some more of your advice rather than just reading about it. Excited for the Stock Scout too.
Does anyone have knowledge of companies which can collect dividends on behalf of individual investors as a part of brokerage service in Kenya. I tried SBG securities with no luck.
I suggest you contact either NIC Securities or AIB Capital. I’ve heard both will work with non-resident investors who need a convenient way to collect dividends.