Wednesday, January 29, 2014

Dividend Increase: NVS

Novartis (NVS) is increasing its annual dividend by 6.5%, from CHF 2.30 to CHF 2.45 per share, putting the company on track for its 17th consecutive year of dividend growth in its home currency of Swiss francs (news release). Due to exchange rate fluctuations, it is difficult to determine the exact amount of the forthcoming dividend, which is usually paid in April. However, the exchange rate is better now than it was at this time last year (i.e., CHF is stronger), so the effective dividend increase in USD will likely be slightly higher than 6.5%.


  1. DGM – Novartis is perhaps my most frustrating stock. First, my dividend (and thus my dividend increase) is reduced by 35% as a result of the Swiss dividend withholding tax. This makes my effective dividend increase for the three years of 2011 thru 2013 (in Cdn dollars): 3.25%, 1.25% and 4.3%. Increases to be sure, but not enough to get me excited. The problem is compounded by the fact that although the stated yield when I purchased it was 4.02%, the effective yield due to the withholding tax reduced this to 2.62%. So I end up with a pedestrian yield, combined with low dividend increases.

    For the last year I have been using partial sales of Novartis to help fund other purchases. I did this with Stanley Black & Decker in October 2013, and more recently with Unilever a few weeks ago. This has left me with about three quarters of my original Novartis position.

    I had been hoping Novartis would get back to the 16.5% dividend increase they averaged between 2004 and 2011 (or about 10.75% after the dividend withholding tax) but that looks a long way off. At this point I think I will continue to sell it off to fund other purchases, with an eye on picking up GE or JNJ at the right price (GE is getting close).

    Take care.

    1. you are aware, that you can get back the 35% withholding tax from the swiss govt up to three years backwards with very little paper work?

    2. Anonymous – thanks for the suggestion, however, that only applies to foreign stocks held in non-registered accounts. In that case you can apply for a credit for the amount withheld that you can apply against Canadian income taxes.

      In the case of RRSPs and other retirement accounts, Canada has a tax treaty with the U.S. that exempts you from the withholding tax. However, if you hold U.S. stocks in a TFSA or an RESP, you’re dinged the 15% levy and you can’t get it back. As a result, you’re best off holding U.S. stocks that pay dividends inside your RRSPs, and keeping them outside of your TFSAs and RESPs.

      I don’t hold Novartis in my non-taxable account, because it is not eligible for the Canadian dividend tax credit. Therefore I hold it in my RRSP. Keep in mind that Novartis is listed on the NYSE as an American Depository Receipt (“ADR”). ADRs are not considered shares of a U.S. company, and as a result they don't fall under the Canada/U.S. tax treaty.

      Take care.

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