If you hold a self-directed Registered Retirement Savings Plan (RRSP) account at a broker like TD Direct Investing or Scotia iTrade that still does not offer the ability to segregate USD-denominated securities held in RRSP accounts from securities denominated in Canadian Dollars, you are incurring a cost when dividends are paid into your account. The total cost depends on two factors: (a) the dividend yield of each holding that pays a dividend in US dollars (note that this may include both US-listed securities such as stocks and ETFs and about a score of Canadian companies that are listed on the TSX but pay a dividend in US dollars) and (b) the cost of converting US dollars into Canadian dollars at your broker.
To calculate how much it is costing you to hold a RRSP account at one of the offending brokers, I put together a simple Google spreadsheet. Just enter the cost of converting currency (as of this writing, a typical broker will charge roughly 2 percent for converting CAD into USD or vice versa), the holdings in your RRSP accounts that pay dividends in US dollars and their dividend information. The cost of dividend conversion is simply the total US dollar dividends received in a RRSP account multiplied by the cost of converting currency. Note that I have included Encana Corp. (TSX: ECA, NYSE: ECA) in my example below. Encana is a Canadian corporation that is a component of the TSX Composite Index but it pays dividends in US dollars, which will be converted into CAD in both Canadian dollar RRSP accounts and investment accounts at all brokers.
Some readers are under the mistaken impression that investors can avoid the currency conversion costs by enrolling in synthetic DRiPs. Unfortunately, DRiP investors are paying not just once but twice for converting currency. Their USD dividend payments are first converted into CAD, then their CAD are converted back into USD and only then are the dividends used to purchase more shares.
